Update Encana (ECA)
EnCana (ECA) formalized its split into two companies when it began trading as EnCana (ECA) and Cenovus Energy (CVE) on the New York Stock Exchange on December 9.
Shareholders in EnCana received one share of the new EnCana and one share of Cenovus for each share of the old EnCana they held before the split.
The transaction split the company’s oil and natural gas holdings with the new Cenovus getting the old EnCana’s oil projects and its established natural gas and crude oil production assets in Alberta and Saskatchewan. In addition Cenovus becomes the owner of the old company’s two oil refineries in Illinois and Texas.
The new EnCana, stripped of those oil assets, becomes a pure play natural gas company with production and development focused in unconventional natural gas shale formations in British Columbia, and in the United States in the Barnett, Montney, Horn River and Haynesville natural gas shale regions.
EnCana was lucky or smart enough to have hedged about two-thirds of its 2009 natural gas production at $9 per thousand cubic feet. Not too shabby when natural gas spent much of 2009 under $5 per thousand cubic feet.
What will the company do with that cash? Plus the $3.5 billion the new EnCana gets from Cenovus as part of the split up?
Shut out in Iraq: The country’s oil goes to everybody but the U.S.
All that blood and no oil?
Even if you don’t believe that the Iraq war was all about oil, the results of that country’s auction for the right to explore and develop its huge oil reserves were shocking: U.S. companies were just about shut out in the results announced in December 13. ExxonMobil (XOM), which won the right to develop the West Qurna 1 field back in November, is the only U.S. company to lead a winning bid. And Occidental Petroleum (OXY) is the only U.S. oil company that wound up as a junior partner in a winning bid.
Yes, Iraq’s oil fields, which could produce more oil—11 million barrels a day—by the end of the next decade than Saudi Arabia produces now, will be developed with almost no participation by U.S. oil companies.
As shocking as which companies didn’t win bids is which companies did.
- Royal Dutch Shell (RDS) will operate the Majnoon field (production target 1.8 million barrels of oil a day) and hold a 45% share. Its major partner with a 30% share will be Malaysia’s national oil company Petronas.
- China’s CNPC (CKKHY), Petronas, and France’s Total (TOT) will develop the Halfaya field (production target 535,000 barrels a day)
- Russia’s largest private oil company Lukoil (LUKOY), and Norway’s national oil company Statoil (STO) will develop West Qurna 2 (production target 750,000 barrels a day)
- Angola’s national oil company Sonangol will develop the Najma oil field (production target 110,000 barrels a day) and the Qayara field (production target 120,000 barrels a day)
- CNPC and BP (BP) will develop the Rumaila field (reserves of 17.8 million barrels)
- Petronas and Japan’s Japex will develop the Gharraf field (reserves of 860 million barrels)
- Russia’s Gazprom, Turkey’s TPAO, Korea’s KOGAS, and Petronas will develop the Badra field (production target 170,000 barrels a day).
ExxonMobil buys U.S. natural gas for $31 billion–I told you this was a big trend
ExxonMobil (XOM) will buy XTO Energy (XTO) for $31 billion in stock. (ExxonMobil will also assume $10 billion in XTO Energy debt.)
This acquisition is just the latest example of a shift among the international energy majors from exploration and development for oil in risky new geologies and tough climates to a concentration on predictable, low-production cost assets such as onshore U.S. reserves of natural gas locked up in shale formations such as the Barnett shale formation of Texas.
I flagged that trend for you in two posts earlier this month. You’ll find links to those columns later in this post.
The return of the oil shortage–around 2015–and why the industry’s logical decisions now will make it worse
Devonshire Energy’s decision to sell its expensive to develop deepwater assets in the Gulf of Mexico in order to concentrate on its onshore natural gas reserves makes perfect sense.
For that company.
For the oil industry and for the global economy picture, though, could make the predicted energy crisis of 2015 or so much worse.
In the short-term, there’s plenty of oil. The slowdown in the global economy and the addition of new supplies from countries such as Angola assures that. OPEC (Organization of Petroleum Exporting Countries) has a sizable surplus of production capacity.
In the long-term the story is very, very different. In the long-term, say 2030, oil could be in serious shortage again. And I think the likely effects of that shortage now 20 years off will be felt much sooner thanks to perfectly reasonable decisions by individual oil companies to maximize their profits. Maybe as soon as 2015.
If you are a genuinely long-term investor I’ve got a three stocks to suggest at the end of this post for how to profit from what is admittedly a very distant trend. Even if you’re not interested in putting money to work on prospects that are so far away, I think knowing about this trend will give you potentially profitable context for all your investments.
The short and the long of oil
Same day, November 12. Two different reports. Two different views on oil.
First, the U.S. Energy Information Administration: There’s a glut of oil.
Domestic crude inventories rose 1.8 million barrels to 338 million barrels in the week ending on November 6. That was way above the 600,000 barrel increase oil traders had expected according to a Reuters survey. In addition the report showed that U.S. oil refineries are running at just 80% of capacity.
No wonder that December oil futures fell by about 3% to $77 a barrel.
Second, the International Energy Agency: There’s resurgence in oil demand.
Oil demand has started to grow again after falling for a year and a half. Oil consumption is, in fact, exceeding forecasts and is on track to show a year-to-year growth in demand for the fourth quarter of 2009. That would be the first quarter to show year-to-year demand growth since the second quarter of 2008.
It’s actually fairly easy to reconcile these two reports with their seemingly contradictory reads on the oil market.
