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Tickers in this Article: OXY, APC, PXD, LAYN, HGT, XTO, CHK
Most investors don't think about Kansas when discussing the energy business, but Kansas is the site of the Hugoton basin, one of the oldest producing natural gas basins in the United States. The state also has several other producing areas that are actively being explored.

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Assets here are generally not very capital intensive, so operators use the cash flows to pay for the development of higher-growth areas in its portfolios.

The History
Natural gas was first discovered in the 1920s in the Hugoton Basin, which is located in Southwest Kansas. The basin covers about 12,000 square miles and produces mostly natural gas from both Permian and Pennsylvanian era rocks. In 2008, the Hugoton Basin was the largest producer of natural gas in the state, generating 162 Bcf (billion cubic feet).

The Players
One of the largest producers in the Hugoton Basin is Occidental Petroleum (NYSE:OXY), which has an acreage position of 700,000 acres and is the second-largest producer in the state.

Anadarko Petroleum
(NYSE:APC) also has significant assets in Kansas, although it doesn't discuss the properties much. Most of its Kansas acreage is in the Hugoton Basin. The company has 1,200 producing wells here, and the company describes them as a "long-life, slow-decline asset." (Find out how to stay on top of data reports that could cause volatility in these markets, read Become An Oil And Gas Futures Detective.)

A small cap company active in Kansas is Layne Christensen Company (Nasdaq:LAYN). Layne Christensen has a coalbed methane operation in the Cherokee Basin. The company has 215,000 acres and produced 20Mmcfd from its acreage here.

Another company that investors can look at is the Hugoton Royalty Trust (NYSE:HGT). This trust was created in 1998, when XTO Energy (NYSE:XTO) conveyed 80% of the net profits of its producing properties in Kansas and several other nearby states, into the trust. The trust paid $2.91 in dividends per unit in 2008, but through May 2009 has only paid $0.19.

Chesapeake Energy (NYSE:CHK) was also a large acreage holder and producer, but in May 2008, the company put a portion of its reserves in Kansas and several other states in a Volumetric Production agreement for $616 million.

Pioneer Natural Resources (NYSE:PXD) has 1,200 wells on its 247,000 net acres in the Hugoton Basin. The company owns the infrastructure to gather and process the natural gas as well.

The Bottom Line

Although Kansas is no longer a hot spot for exploration, many large, well-known public companies have large holdings in the state. The cash flows that these mature properties put off are used to develop higher growth areas elsewhere in North America but that doesn't mean they should be forgotten. (How a company accounts for its expenses affects how its net income and cash flow numbers are reported, check out Accounting For Differences In Oil And Gas Accounting.)

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