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Three Big E&P Buys Outside the Majors

They're not the biggest players, but they could still mean big profits

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Occidental Petroleum

Like many of its peers, Occidental Petroleum Corporation (NYSE:OXY) reported lower second quarter earnings this year due to falling commodity prices. However, Occidental’s focus on oil production allowed it to realize a better quarter than most and — like Hess — the bulk of that production has come from new unconventional sources.

Of Oxy’s roughly 766,000 BOE per day production numbers, the Permian Basin accounts for nearly 55% of its domestic oil production, 53% of its domestic natural gas liquids production and 18% of its natural gas production. That’s a good place to be as the Permian represents one of the cheapest unconventional fields in the nation. Higher production and rig costs represent one of the main challenges facing the E&P set in the current energy price environment.

Those relatively lower costs have helped the company bolster its balance sheet and cash flows, while also creating a steady capital investment program to boost long term growth. That program includes high growth areas such as the Middle East and Latin America.

Oxy can currently be bought for slight premium versus the majors, but given its position in some of America’s cheapest fields and higher growing international regions, that premium is certainly justified — especially if you consider the firm’s 2.35% dividend yield.


For investors looking for “wildcatter spunk” in the shell of major energy firm, Apache (NYSE:APA) could be exactly what they are looking for. Throughout the firm’s history, it has geared its portfolio towards short-life, high-intensity assets and more challenging operating environments such as the Gulf of Mexico and North Sea. That spirit still continues as Apache explores unconventional energy prospects in such far-flung areas like New Zealand, Kenya and South America.

But like the previous two superstars on this list, Apache has begun to focus on more cash flow steady assets and is now the second-largest player in the Permian Basin alongside Occidental, Chesapeake Energy (NYSE:CHK) and Exxon. Apache’s Permian Basin assets in Oklahoma and the Texas Panhandle are contributing 55,200 BOE per day to the firm’s production.

Plus, Apache is quite cheap on a metrics standpoint given its blend of high-growth and stable assets. It has a forward P/E of 8.6 that puts it directly in the middle of the pack on this list, but could also make it a real long-term bargain as it continues to benefit from long-term energy trends.

In the end, while the integrated majors represent the cream of the crop when it comes to energy sector, there are plenty of other opportunities for investors — and the trio of Hess, Occidental Petroleum and Apache make ideal selections to play the energy world outside the majors. 

As of this writing, Aaron Levitt did not own a position in any of the aforementioned securities.

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