Seeking Alpha: Can Natural Gas Development Drive PetroChina Further?

Having recently gone over the investment prospects for Italy's Eni (E) and China's CNOOC (CEO), I went into PetroChina (PTR) expecting to find another state-owned energy company trading at a discount to fair value. I think that is what I found, though deciding on the "right" EV/EBITDA multiple involves pretty arbitrary decisions of whether to add a half-point here or there that move the fair value quite a lot. I think PetroChina is undervalued today if it can deliver the mid-single digit EBITDA growth that analysts expect, but significant reserve potential has to be viewed in the context of rising production costs and a significant degree of interference from the government at all levels of the operation and end markets.

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Can Natural Gas Development Drive PetroChina Further?

Seeking Alpha: CNOOC Has Growth Issues, But A Low Valuation Too

Production growth is a familiar issue for a number of large-cap energy companies, with ExxonMobil (XOM), BP (BP), and Royal Dutch Shell (RDS.A) all looking for minimal annual production growth over the next three years. Instead, these companies have largely prioritized their balance sheets and cash payouts to shareholders over growth. CNOOC (CEO), China's largest offshore operator, should be looking at better production growth in the coming years (possibly in the high single-digits over the next five years), but recent shortfalls have brought that growth into question, and a lot depends on ongoing turnaround efforts at the company's Nexen subsidiary.

The compensation for this less-than-perfect near-term performance is an undemanding valuation. With below-average lifting costs, above-average exposure to oil, and better growth prospects, I don't think it is unreasonable to give CNOOC an EBITDA multiple on par with global majors. Doing so produces a fair value above $196 share, leading to more than 10% upside and a respectable dividend to boot.

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CNOOC Has Growth Issues, But A Low Valuation Too

Seeking Alpha: Tullow Hasn't Forgotten How To Find Oil, And The Shares Look Too Cheap

Exploration-focused oil and gas companies can give investors a wild ride. That has definitely been the case at Britain's Tullow Oil (TUWOY.PK), as uncommon drilling success built the company into Europe's largest independent, only to see the shares fall more than 20% over the past year on multiple poor results of its exploration program.

I believe that while finding oil is a "win some, lose some" sort of game, Tullow has proven over the years that it will win more than its share. With a strong core expertise in petroleum geology and demonstrated discipline in license acquisition, coupled with a rich portfolio of exploration assets, I believe that Tullow can regain some of its luster and that the shares are 30% to 40% too cheap even if future drilling success rates can't match the company's past levels.

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Tullow Hasn't Forgotten How To Find Oil, And The Shares Look Too Cheap

Investopedia: New Gas Prices Help PetroChina, But Multiple Challenges Remain

Not unlike Petrobras (NYSE:PBR), PetroChina (NYSE:PTR) finds itself continually put into losing situations by its government. The Chinese government controls the prices at which PetroChina can sell natural gas and refined products like diesel, but cannot control the global cost of crude, nor the cost of producing oil, gas, and refined products. Couple that with aging fields, rising prices, and lower returns on capital, and PetroChina is in a difficult position.

Although that's a serious backdrop for the company, it's one in which management has always operated, and generally operated pretty well. Although aging fields in China are a concern, the company has been expanding its overseas production options and the development of shale and other unconventional resources in China could offer production growth. All told, PetroChina looks a little too cheap today and offers decent capital appreciation potential and a solid dividend.

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http://www.investopedia.com/stock-analysis/070313/new-gas-prices-help-petrochina-multiple-challenges-remain-ptr-pbr-ceo-snp-choly.aspx

Commodity HQ: A Deeper Look At Iran's Commodity Industry

Iran is quite possibly one of the best-known and least-known countries in the world for American investors. Tense, if not outright hostile, relations between Iran and many Western countries have kept it in the news, but relatively few investors seem to appreciate Iran’s size, demographics (it’s a very young country), and economic prospects. In recent years sanctions have had a massive impact on Iran’s economy, but it remains a major player within OPEC and in the global energy market.

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A Deeper Look At Iran's Commodity Industry

Commodity HQ: A Deeper Look At China's Commodity Industry

Although the geographical size of China is perhaps not that difficult for North Americans to appreciate, their population is another matter. As China has become the second-largest economy in the world, it is without question transformed into an enormous force in the world’s commodity markets; so much so, in fact, that the recent commodity supercycle is now generally seen as a byproduct of China’s emergence.

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A Deeper Look At China's Commodity Industry

Commodity HQ: A Deeper Look At China's Commodity Industry

Although the geographical size of China is perhaps not that difficult for North Americans to appreciate, their population is another matter. As China has become the second-largest economy in the world, it is without question transformed into an enormous force in the world’s commodity markets; so much so, in fact, that the recent commodity supercycle is now generally seen as a byproduct of China’s emergence.

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http://commodityhq.com/2012/a-deeper-look-at-chinas-commodity-industry/

Investopedia: CNOOC Paying Up For An Undervalued Canadian Oil Asset

Canada and China have had an interesting relationship over recent years. While Canada has certainly appreciated China's boundless appetite for its ores, agricultural products and energy exports, it has not been quite so appreciative of the efforts of Chinese companies to acquire operating assets in the country. So while CNOOC's (NYSE:CEO) announced intention to acquire Nexen (NYSE:NXY) makes sense on many levels, it may not be a total certainty that the deal goes through.

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http://stocks.investopedia.com/stock-analysis/2012/CNOOC-Paying-Up-For-An-Undervalued-Canadian-Oil-Asset-CEO-NXY-BHP-POT0723.aspx

Investopedia: Does Penn Virginia Deserve Such A Low Multiple?

The last twelve months have not been kind to smaller gas-focused E&P companies. With strong production across the country, prices are as low as they've been in almost three years and many companies continue to drill so as to hold onto leases. Making matters worse, exploiting shale gas formations requires considerably more expensive wells and procedures, and energy service companies like Halliburton (NYSE:HAL) have not been in a hurry to cut prices. All in all, it has been an ugly set-up and an ugly market for Penn Virginia (NYSE:PVA).

In the Right Places
At first glance, it would seem that Penn Virginia has focused on the right markets. The company has a large position in the Eagle Ford region of Texas, an area that has attracted noteworthies like Apache (NYSE:APA), Exxon Mobil (NYSE:XOM) and CNOOC (NYSE:CEO). Penn Virginia also operates in well-known productive regions like the Granite Wash of Oklahoma and Pennsylvania's Marcellus, as well as holding positions in the Texas/Louisiana Haynesville shale. (For related reading, see Oil And Gas Industry Primer.)


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http://stocks.investopedia.com/stock-analysis/2012/Does-Penn-Virginia-Deserve-Such-A-Low-Multiple-PVA-APA-XOM-CEO-UPL0110.aspx

Investopedia: Chesapeake Making The Best Of A Tough Situation

Here's a question for natural gas investors to ponder: How much growth do you really want? Natural gas prices are still low and reserves are a limited asset, so does it really make sense for these companies to cash out a meaningful amount of these assets too cheaply? Certainly, these companies need to fund their operations and establish enough production to hold valuable leases, but production at below-trend prices is a mixed blessing. 


Chesapeake Energy (NYSE:CHK), one of the largest independent natural gas producers, continues to walk that tightrope while remaining very highly leveraged to future rises in natural gas. (For more, see Natural Gas Industry: An Investment Guide.)


Decent Q1 Performance
Chesapeake reported over 6% sequential production growth for the first quarter, with realized prices up about 2%. Within those numbers, the company reported strong growth in its oil and liquids production - up nearly 9% on a sequential basis and up 56% from last year. 



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http://stocks.investopedia.com/stock-analysis/2011/Chesapeake-Making-The-Best-Of-A-Tough-Situation-CHK-PXP-STO-TOT-CEO0504.aspx

Can Sasol Liven Up North American Gas?

For years now, natural gas bulls have sputtered and fumed over the expanding gap between the price of oil and natural gas. From an energy-content point of view, natural gas is extremely cheap and oil is relatively quite expensive. Typically those gaps do not persist, but there is a problem in this case - natural gas just is not as useful; it does not go into car gas tanks, it does not make diesel or jet fuel, nor any of the other follow-on products that come out of a barrel of oil. 

If Sasol (NYSE:SSL) has its way, though, the road to change may be in sight. 

A Tie-Up with Talisman   

Sasol, the large South African synfuel specialist, announced an agreement on Monday whereby it was acquiring a 50% operating interest in one of Talisman's (NYSE:TLM) shale gas assets. Sasol is paying a bit more than $1 billion for 50% of the Farrell Creek development in the Montney Shale. The way the deal is structured is a little unusual, though. Sasol will pay $263 million in cash upfront, and then fund three-quarters of Talisman's development costs up to the announced purchase price.

 
The Asset 
Montney is a bit like Canada's Barnett, Haynesville or Marcellus - a geological formation that contains huge amounts of hydrocarbon resources (natural gas, mostly), but requires advanced exploitation technologies to access. According to reports, this development may contain upwards of 9.6 trillion cubic feet of natural gas - clearly a sizable reserve base. An important part of the asset, though, is the fact that it is also relatively close to established pipeline infrastructure - given the problems that companies like Ultra Petroleum (NYSE:UPL) used to have in getting full value for its gas (due to a lack of infrastructure), that is not a trivial factor.
 

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http://stocks.investopedia.com/stock-analysis/2010/Can-Sasol-Liven-Up-North-American-Gas-SSL-TLM-CHK-UPL-SWN1222.aspx

Petrobras Stuck In The Middle

At first glance, these should be great days for Brazil's energy giant Petrobras (NYSE: PBR). Not only are oil prices heading higher, but Petrobras has privileged access to some of the largest oil fields known today. Unfortunately for PBR investors, there is a great deal of skepticism regarding management's capabilities, and this quarter will not help ease those concerns. 

A Quarter That Does Not Hold Up
At first glance, it would seem that Petrobras had a solid third quarter. After all, net income was up 17% from last year. While revenue was up 14% from last year and up 2% sequentially, EBITDA was up 1% and down 1% for the same respective time periods. A lot of that seemingly strong net income number was fueled by a currency benefit, making it a low-quality beat.

Moreover, some worrying details were in the numbers. Production was up just 1% from last year (and down 1% sequentially), and although this was not a surprise (management discussed this earlier), it marks another entry in this management's history of over-promising and under-delivering on production growth guidance. Even more concerning, though, was the 8% increase in domestic lifting costs (up 1% from the Q2). In other words, the company is not pumping as much as it should, and it's costing more to do it.

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http://stocks.investopedia.com/stock-analysis/2010/Petrobras-Stuck-In-The-Middle-PBR-COP-SU-RDS.A-RDS.B-CEO-PTR1115.aspx

Foreigners Agree: Eagle Ford Shale Is The Place To Be

The Eagle Ford Shale area in Texas is a hot area for energy development that just keeps getting hotter. As two more deals from Monday highlight, companies from around the world are willing to pay up to get a piece of this potentially significant oil and gas resource in south Texas. 

CNOOC and Chesapeake
China National Offshore Oil Corporation (NYSE:CEO), or CNOOC as it is more commonly known, is shelling out potentially as much as $2.2 billion for a one-third stake in Chesapeake Energy's (NYSE:CHK) Eagle Ford acreage. Chesapeake's holdings total about 600,000 acres and appear to be relatively oil-rich - not an insignificant detail considering the considerable price differences between natural gas and oil these days.

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http://stocks.investopedia.com/stock-analysis/2010/Foreigners-Agree-Eagle-Ford-Shale-The-Place-To-Be-CEO-CHK-STO-TLM-PXD-PXP-MHR1012.aspx

China's Potash Hypocrisy

If nothing else, China has chutzpah. China's government put out a statement early on Wednesday indicating that it was paying "close attention" to the possibility that BHP Billiton (NYSE:BHP) would succeed in its bid to acquire Canadian fertilizer giant Potash (NYSE:POT). In mentioning that a so-called BHP potash monopoly would "harm global interests" and that prices are already "unbearable" for Chinese farmers, it would seem that this is a not-so-subtle shot across the bow for not only BHP, but perhaps Canada as well. 

Given that BHP Billiton has a significant stake in Chinese potash company China Sinofert, China actually does have some influence in this process and could certainly apply pressure to BHP through that investment. Moreover, there is still the possibility that a Chinese investment fund or company could make a competing bid for Potash - even as large Chinese companies seem reluctant to commit to much interest in such a move.

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http://stocks.investopedia.com/stock-analysis/2010/Chinas-Potash-Hypocrisy-BHP-POT-SNP-PTR-ACH-BYDDY-LYSDY0916.aspx