Chevron placed the Nafteno Pole Prize on Friday, with the announcement of an offer of money and shares for Anadarko Petroleum. The oil industry is mature for some M & A activities, as it seems that the beautiful premium of about twenty percent that was offered at the previous closing price.
I think we can make the case for extremely well-rounded oil companies to be high on the lists of potential buyers in the search for value. One such company is Apache Corporation. In this article, we will consider why I think that might be the next dominoes to fall.
The general thesis for the movement of oil in oil
Oil stocks are currently insufficiently valued at thirty or forty percent, taking into account the recent performance of the XOP index as an example in terms of oil prices. As of December 24, November 2018, the XOP again recovered about 30 percent of the pre-crash level, while oil almost doubled. Anadarko is about 2% of the XOP.
Over the past year we have seen estimates decline everywhere from 25-40%. The market is usually over or under the action of stock-related transactions, in particular. When basic commodities lose value as oil in the fourth quarter of 2018, stocks may fall precipitously. The three-month period ending on December 24, 2018 reflects this situation.
Since then, as expected, we saw a sharp shape "V". One of my favorite expressions of tenth degree geometry is still true: "The angle of incidence is equal to the angle of reflection." It is a strong recovery, but we have not yet regained the high values of Q-3, 2018. Chevron may be a point of inflection for multiple expansion of oil stocks.
More favorable environment for oil prices
In the first quarter of this year, the winds shifted and many of the factors that reduce oil, returned back. Among them we can count:
• The Fed was eavesdropping the brakes of tightening policy over the last few years.
• Saudi reiterated declaration of increasing global prices, by reducing exports to the United States
• Chaos in Venezuela and the immediate (eternal) civil war in Libya provide concern about supply.
• Some signs that turbulent drills take a break for drilling to reduce prices.
• Signs that the productivity of the bark can be leveled, that is, it requires more inputs to maintain the current levels.
• Overall, positive comments are coming out of China's trade talks.
There is no causal relationship between the oil and the shares of the companies that draw it. There are many factors that weigh on the market, and they are the causes of the current disparity between the oil and oil reserves. What is needed to help in closing the gap is a point of inflection signaling a change in market thinking. Related: Think tank: The new refinery in Mexico has already been doomed
Chevron may have just delivered this flexible item last Friday.
What changes things about North American shales after connecting Chevron / Anadarko?
Lately, we have been flooded with theories of shale peaks. Perhaps you have read … those of Martensson and Berman stand out separately. In this, and in others, many convincing arguments have been made that the shale growth trajectory is declining due to lower quality of rocks than in the past. Some, such as Jim Chanos, show a very dark interpretation of the shale results so far, that's all it's a scam. The Ponzi scheme is often used by unfortunate tellers.
It is not my intention today to challenge each of these experts. They can very well be right, time will show. What I want to restart in this article is an element of market activity that is being ignored by the "mass of the accident". Clever arguments set out to slip the slate (falling?) In a fall, they managed to ignore one simple fact.
The shale audience down chooses to ignore the obvious, and frankly, the most attractive pro-argument for the slate that exists. Big oil carries resources to bypass forests. Companies are falling in with each other in an attempt to land large fish "Chalet", like Anadarko. And, by doing so, they set up ambitious growth plans for this resource. BP, (BP), ExxonMobil, (HOM), and now Chevron. What do they tell us about shale voting with their capital dollars?
It's really simple. They say that their geophysical teams – who, let's admit, are the best in the business, told them they can force more oil and gas on a scale for less money than any other equivalent investment. What is worn is the low base of production costs, which when combined with the high technology that these companies can bring to the project, turn into profit and free money flow.
Here's what, Michael Wirth's president, about what many consider to be the smartest, most frequent oil operator in the Chevron business, about this transaction in a recent interview:
"This agreement allows us to compete at any price of oil prices, to produce synergies from the combination of the two companies and to be credited with earnings in the first year."
A point worth doing, and one by Mr. Wirth, it was that not only Anararko's shale acreage attracts their interest, but the global footprint of this company aligning so closely with their in deepwater and international. But they do not make any mistake, the Anadarko shale field is the main character in this deal.
None of the above is really very complicated whether it is?
In order to summarize this section, in my opinion as shale from North America, and especially from Perm shale, enters its maturity,
• huge adjacent blocks on the surface,
• with multiple accumulation horizons,
• With the newly built infrastructure for the take-off of the pipeline,
• A close domestic infrastructure for processing,
• Export infrastructure for oil and LNG
all this contributes to a very attractive investment scenario for our production hungry Super majors, and perhaps foreign companies looking to establish a foundation in this fertile basin.
In my opinion, Chevron and Anadarko get together is just one of the wave of consolidation of oil assets that will come.
Download Apache case
Apache's shares (APA) surfaced nicely on the news of CVX / APC, as well as many other shale players, but fell back as it was the day. I do not read anything in that event.
Alpine High is a large block of some 300 km of adjacent hectares, which is estimated to contain 3 billion BBOE. As you can see from the slides below, alpine high development is distorted to wet gas. Wet gas is basically the heavier end of a hydrocarbon molecule with more carbonaceous substances, making them heavier and striving toward a liquid phase. Dry gas is defined as 85% methane or better.
One of the things that makes Perm so fruitful is the thickness of the hydrocarbon pillar, up to 6,000. There are more payroll horizons, with names like Buns Springs, Wolfkamp, Barnett and Woodford. Apache has already identified over 5,000 drilling sites around this surface, with about 75% of them targeted to wet gas. Related: Brent could hit 80 US dollars this summer as hedge funds lost a pair
One of the things that were withdrawn from Apache's shares was the limited capacity to drain dry gas. Once Kinder Morgan, the Mexican Coast Express-GCX, the line is in use, later this year, these problems are moving away. Apache was one of the initial GCX subscribers, guaranteed take-off of 500 MMCF / D.
Cryogenic capacity is the next piece of the puzzle. To convert wet gas into dry gas, heavy ends first concentrate and cogenogenate from the gas. These units will appear this year. Billions or so of the capital needed to process wet gas has also been withdrawn for stock. The market does not give you anything to invest for the future, it's just interested in what's happening now to generate profits.
Summary of the section
The purpose of this section was to establish that Apache has built a single asset in the Perm basin with the capacity to make direct cash flow contributions. It seems that all aspects of the production cycle are set.
• High-level resource development by reducing the cost of a well and restoring meetings or overcoming industry standards for wells in this region
• Infrastructure processing in a place where clouds are reduced.
• Agreements for take-off with third parties for the delivery of gas to the markets for sale.
But Apache is more than just Permian assets. Not discussed in this article for brevity are other means. Now we will pulsate for completeness.
• Altus Midstream, Altus Midstream was set up as a JV with Kayne Anderson to service the needs of the Alpine High. It will be driven as a standalone C-Corp with Apache owning 80%. Currently, at a price of $ 5.85 / share, it is currently selling about $ 1.9 billion.
• Egyptian PSC Apache has been working in Egypt for several years and has recently been assigned to new production-sharing concessions, the PSC, which allow it to expand its potential for many years.
• North Sea Apache entered the North Sea by purchasing ExxonMobil, Berry in the field in 2012, and later acquiring the Forties Field field on BP. At that time, it found significant new amounts of oil. Garten, manufactured by the Beryl Alpha platform, has already produced more than one million barrels of oil, with additional spare reserves of 9-10 mm bbl. Apache has identified two new drilling locations based on Garten's success.
• Suriname The area of the embedded gray-colored map with multiple green spots represents XOMs development of the Stabroeck field. If you are reading the news related to energy topics, you must be familiar with Stabroeck. It is the most significant finding of research in the western hemisphere for many years. Apache has a PSC from Suriname for blocks directly in the immediate vicinity of Stabroeck, and is in line with the trend of announced discoveries in that area. The Apache was launched in Block 53 as early as 2017. Now after considering the seismic data for several years, he is ready to try again in Block 58, later this year. Success could have a profound impact on Apache, as XOM has so far found nearly 4 billion bbl in Stabroeck. Apache owns 100% of Block 58.
Who might be interested? Obviously Shell, who publicly declares that he is on the market for the purchase of Perm. Perhaps Occidental Petroleum, (OXY) (which could be an end in itself)? OXY was in the search for Anadarko, and actually surpassed CVX for per action basis. There are some who feel there may be another shoe to give up on this issue. Anadarko shareholders should spend their hands happily in this perspective, as every new offer should now announce a $ 1 billion cancellation fee in a CVX deal.
Apache is the main goal to buy a global super-major, or a national oil company. The game is underway, thanks to Chevron. All we can do now is to wait. Of course, nothing can happen in this regard. You can never tell the future with accuracy.
My gaze however, we will not have to wait long!
By David Mesler for Oilprice.com
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