Last week, we saw some major announcements from
Anadarko Corp
(
APC
) and ConocoPhillips (
COP
) regarding their international operations in Asia-Pacific.
Anadarko announced that it was upbeat about the potential of its
three exploration blocks in New Zealand. It estimates that the
blocks could hold up to 150 million barrels of crude oil or
trillions of cubic feet of natural gas. This just about meets the
company's threshold for investing in overseas exploration projects.
Conoco announced that it was expanding its natural gas facilities
in Darwin, Australia and considering bids on future gas projects in
China.
Anadarko
Anadarko has been exploring for oil in New Zealand since 2008,
and it holds permits for a block in the Taranaki Basin off the west
coast of North Island and for two blocks off the east coast of New
Zealand South Island. It expects to begin drilling in late 2013 or
early 2014. ((
Anadarko Petroleum: New Zealand Blocks Could Hold
150 Million Barrels of Oil
, Fox Business))
We think that Anadarko is well-placed to exploit this
opportunity by leveraging its expertise at deepwater
exploration, production, and project-management. Anadarko ranks in
the top five companies in the world for number of wells drilled in
water depths greater than 1,500 meters, and is the second most
active driller in water depths greater than 2,300 meters over
the last 10 years, according to IHS Energy. It also
operates the world's deepest and largest natural gas
processing facility at Independence Hub, Gulf of Mexico.
The company is becoming active in the natural gas business
outside of the U.S. It has been involved in exploration in the
Rovuma Basin off the coast of Mozambique and
has tasted success
. Mozambique is now all set to become a major exporter of LNG to
world markets.
Click here for our full analysis of Anadarko Corp
.
We recently revised our price estimate for Anadarko to $88,
which is about 20% ahead of its current market price.
ConocoPhillips
It is considering adding another liquefied natural gas (
LNG
) processing train to its Wickham Point facility in Darwin,
Australia. The new LNG train is expected to handle the output
from the Browse basin, where Conoco has been drilling for gas. This
would also require the construction of a new pipeline to the Darwin
facility from the Browse basin because the latter is located
offshore. Although Conoco did not comment on potential customers
for the additional gas, we believe that that those customers
would be Asian countries like China, Japan, and India. We have
elaborated why we think so towards the end of this article.
(ConocoPhillips Adds To LNG Facilities In Australia On Expected
Asian Demand, Trefis)
Conoco is also considering expanding its China portfolio to
include shale gas. China is expected to put up 17 shale gas
blocks for auction in the coming weeks in a bid to develop a robust
shale gas industry. It is hoping to attract American energy
firms to invest in the industry and form partnerships with domestic
companies. It wants to see the success of the American shale gas
industry replicated in China.
China had no commercial shale gas production in 2011, but
has set itself an ambitious target of producing 229.5 billion cubic
feet of shale gas a year by 2015. However, it lacks the
technological expertise to do so on its own. This presents an
excellent opportunity for western companies like ConocoPhillips
which have vast experience in this field. (Will ConocoPhillips Help
China Tap Its Shale Gas Reserves?, Trefis)
Click here for our full analysis of
ConocoPhillips
We recently revised the Trefis price estimate for
ConocoPhillips to $60 which is about 5% ahead of its market
price.
The common thread connecting all of these announcements is
natural gas meant for the international market. For both Anadarko
and ConocoPhillips, we believe that the attraction of drilling for
gas outside the U.S. comes from the fact that there is a huge
difference between gas prices in the U.S. and those in
international markets. ConocoPhillips reported that in Q2 2012, the
average realized price for its natural gas in the international
segment was $11.69/Mcf (1 Mcf = 1,000 cubic feet) while that for
the North American market was $1.93/Mcf.
The U.S. is undergoing a gas revolution of sorts with shale gas
flooding the market like never before, resulting in an abundance of
supply but not enough takers. Internationally, however, gas prices
remain robust due to demand from growing economies, particularly in
Asia. Countries like China, Japan and India continue to place
orders for humongous quantities of LNG. Japan is looking to move
away from nuclear power as a policy decision in wake of the
Fukushima disaster, while China and India have burgeoning economies
which require vast quantities of gas.
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