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Oil Rules
After many years of taking a back seat to natural gas development, oil is starting to regain its prominence in the exploration and production industry. This is probably due to the strong price of oil relative to natural gas.
The oil gas ratio has long been out of its historical range with oil trading anywhere from 15-20 times the price of natural gas, compared to a normal range of 6-10 times. This irregularity will not be an anomaly forever if the ratio stays at this level. It may have altered the behavior of one of the industry's most prominent natural gas companies.
IN PICTURES: How To Make Your First $1 Million
Joint Venture For Oil?
Chesapeake Energy (NYSE:CHK), which is one of the most "gassy" names in the exploration and production sector, is looking to diversify its production to include more oil. Aubrey McClendon, the CEO, reportedly told a crowd of investors during a conference that the company would like to "find more oil."
Chesapeake Energy has large positions in almost every shale play in the U.S., except the Bakken Shale, which is the only one that produces primarily oil.
There are several smaller cap companies with acreage in the Bakken Shale, which might be open to a joint venture if they find they need some capital. These include Northern Oil and Gas (NYSE:NOG), Brigham Exploration (NYSE:BEXP) and Kodiak Oil and Gas (NYSE:KOG).
Production On the Rise
Occidental Petroleum (NYSE:OXY) announced the discovery of a huge new field in the middle of one of the most mature oil producing areas of the U.S. last quarter and is not wasting any time developing this asset. The company is also seeking to develop the oil zones it believes are prominent in the field.
Occidental's California production has nearly quadrupled from 7,700 barrels oil equivalent (BOE) per day in the first quarter of 2009, to 26,000 BOE per day in the third quarter of 2009. Management attributed most of the increase to the new field in Kern County.
During the conference call, the management of Occidental Petroleum provided some tantalizing bits of information on the future of developing its California assets. The company has drilled 34 exploration wells over the last year targeting "non-traditional hydrocarbon zones" in the state. This does not include wells to develop the Kern County discovery. Eleven of the 34 were commercial and 10 more are under evaluation. The company plans seven more this year.
Occidental is also going to try to orient the development of the Kern County discovery more toward oil.
"During 2009, we expect to drill additional 11 wells. In the next two quarters, the focus of our drilling will be on oil wells as we seek to further define the oil zone," said Steve Jason, the President of Occidental Petroleum.
The Bottom Line
The resurgence of oil due to the price strength during the recession, on an absolute and relative basis, has attracted the notice of the exploration and production industry. Look for more natural gas oriented companies diversifying into oil. (To learn more, check out our Oil And Gas Industry Primer.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
The oil gas ratio has long been out of its historical range with oil trading anywhere from 15-20 times the price of natural gas, compared to a normal range of 6-10 times. This irregularity will not be an anomaly forever if the ratio stays at this level. It may have altered the behavior of one of the industry's most prominent natural gas companies.
IN PICTURES: How To Make Your First $1 Million
Joint Venture For Oil?
Chesapeake Energy (NYSE:CHK), which is one of the most "gassy" names in the exploration and production sector, is looking to diversify its production to include more oil. Aubrey McClendon, the CEO, reportedly told a crowd of investors during a conference that the company would like to "find more oil."
Chesapeake Energy has large positions in almost every shale play in the U.S., except the Bakken Shale, which is the only one that produces primarily oil.
There are several smaller cap companies with acreage in the Bakken Shale, which might be open to a joint venture if they find they need some capital. These include Northern Oil and Gas (NYSE:NOG), Brigham Exploration (NYSE:BEXP) and Kodiak Oil and Gas (NYSE:KOG).
Occidental Petroleum (NYSE:OXY) announced the discovery of a huge new field in the middle of one of the most mature oil producing areas of the U.S. last quarter and is not wasting any time developing this asset. The company is also seeking to develop the oil zones it believes are prominent in the field.
Occidental's California production has nearly quadrupled from 7,700 barrels oil equivalent (BOE) per day in the first quarter of 2009, to 26,000 BOE per day in the third quarter of 2009. Management attributed most of the increase to the new field in Kern County.
During the conference call, the management of Occidental Petroleum provided some tantalizing bits of information on the future of developing its California assets. The company has drilled 34 exploration wells over the last year targeting "non-traditional hydrocarbon zones" in the state. This does not include wells to develop the Kern County discovery. Eleven of the 34 were commercial and 10 more are under evaluation. The company plans seven more this year.
Occidental is also going to try to orient the development of the Kern County discovery more toward oil.
"During 2009, we expect to drill additional 11 wells. In the next two quarters, the focus of our drilling will be on oil wells as we seek to further define the oil zone," said Steve Jason, the President of Occidental Petroleum.
The Bottom Line
The resurgence of oil due to the price strength during the recession, on an absolute and relative basis, has attracted the notice of the exploration and production industry. Look for more natural gas oriented companies diversifying into oil. (To learn more, check out our Oil And Gas Industry Primer.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Eric Fox
Eric J. Fox, CFA, is a freelance financial writer and has previous experience working in the asset management industry as an equity analyst and portfolio manager on the buy side. His favorite area to write on is the energy sector and he keeps current on the industry by reading Haynesville Shale, Permian Oil and Gas and various other blogs.
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