The energy sector has seen a number of recent restructurings as some diversified energy companies have split up through either a spinoff or initial public offering of a particular business segment. These actions have been motivated by management teams that believe that a singular focus is the best way to achieve shareholder value. Sometimes this is also accompanied by investor pressure from the sidelines.

TUTORIAL: The Oil Services Industry Handbook

Recent Activity
Marathon Oil
(NYSE:MRO) recently spun off the company's refining business as Marathon Petroleum Corp. (NYSE:MPC) and will now operate exclusively as an exploration and production company. Williams (NYSE:WMB) also announced a similar restructurings and will sell part of the company's exploration and production operations through an initial public offering later in 2011. (The initial valuation of an IPO can determine the success or failure of a specific stock. For more, see How An IPO Is Valued.)

Future Candidates
This spasm of reorganizations has left a dwindling number of energy companies that are candidates for future restructurings. Unit Corp. (NYSE:UNT) and MDU Resources (NYSE:MDU) are two energy companies that have operations in disparate parts of the energy complex and might be suitable for a restructuring.

Unit Corp
Unit Corp operates three distinct businesses in the energy sector. The company has an exploration and production business focused on the onshore United States, a contract drilling segment and a midstream operation that gathers, processes and transports natural gas and natural gas liquids.

The exploration and production segment of Unit Corp is active in Texas, New Mexico, Oklahoma and Louisiana and reported proved reserves of 104 million barrels of oil equivalent (BOE) at the end of 2010.

The contract drilling segment owns 126 land rigs, including five new builds. In the first quarter of 2011, Unit Corp reported only a 58% utilization rate for this fleet. The company also uses some of the rigs in its own exploration and production operations.

A possible indication of the importance that investors and possibly management puts on the various businesses of Unit Corp can be seen in the company's latest investment presentation. Unit Corp devotes nine pages to its upstream exploration and production operations, compared to only four pages for the contract drilling segment and two pages for the midstream business. (Oil and gas investments can provide unmatched deduction potential for accredited investors. For more, see Oil: A Big Investment With Big Tax Breaks.)

MDU Resources
Another diversified energy company that might one day find itself under pressure by investors to split up is MDU Resources. The company operates an exploration and production business, an aggregates and construction business and also owns seven regulated utilities that are involved in electricity, gas distribution or pipelines operations.

MDU Resources operates its exploration and production business under the name Fidelity Exploration & Production Company. The company is active in various plays throughout the Rocky Mountain and Midcontinent area, including the Bakken and Niobrara formations.

MDU Resources reported proved reserves of 646 Bcfe at the end of 2010, with 69% of the reserves composed of natural gas and the balance of crude oil. The company plans to spend $3.5 billion in capital from 2011 to 2015 on all its businesses, with the majority spent on exploration and development of oil and gas assets.

The Bottom Line
Investors that are looking for a restructuring play in the energy sector might want to take a look at Unit Corp or MDU Resources as both companies operate disparate businesses in the energy sector, and might one day be inclined towards a separation of the company's business segments. (For related reading, see A Guide To Investing In Oil Markets.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: iShares Morningstar Small-Cap Value

    Find out about the Shares Morningstar Small-Cap Value ETF, and learn detailed information about this exchange-traded fund that focuses on small-cap equities.
  4. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  7. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  8. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  9. Mutual Funds & ETFs

    ETF Analysis: WisdomTree SmallCap Earnings

    Discover the WisdomTree Small Cap Earnings ETF, a fund with a special focus on small-cap and micro-cap stocks with positive earnings.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares US Regional Banks

    Obtain information and analysis of the iShares US Regional Banks ETF for investors seeking particular exposure to regional bank stocks.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  4. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  5. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
  6. Net Present Value - NPV

    The difference between the present values of cash inflows and ...
RELATED FAQS
  1. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>
  6. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!