• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Energy

Exploiting BP's Weakness

These two oil plays picked up strategic assets from BP that will accelerate their growth prospects.
By BRET JENSEN
Oct 09, 2012 | 10:00 AM EDT
Stocks quotes in this article: BP, MPC, PXP

I have had a varied career. I spent two decades in technology before launching a hedge fund in 2008. Prior to that, and just out of college, I spent 18 months as a professional poker player in the late 1980s. I even managed to win a few minor tournaments. Those months were a great training ground for a future career as a professional trader. Poker teaches you many skills, such as being able to calculate probabilities, being aggressive when the odds on your side and knowing how to recognize special situations.

One of the situations I loved playing during tournaments was going up against a player that was "shortstacked." Because of the individual's poor financial position, the player would have to make moves that otherwise they would not prudently make, and it gave me an advantage. This same scenario can play out in the market if a company needs to raise funds by divesting assets. One such situation exists currently with BP (BP), which has been unloading oil and gas properties in order to raise $38 billion to fund the aftermath (litigation, fines) of the Gulf oil spill. Here are two companies that recently picked up strategic assets from BP that will accelerate their growth prospects.

Marathon Petroleum (MPC) operates six refineries in the Gulf Coast and the Midwest.

Pickup from BP: MPC will purchase BP's 451,000 barrel-a-day Texas City refinery for $598 million, less than a quarter of the $2.85 billion BP said it hoped to receive for the plant. Marathon will also pay an additional $1.2 billion for inventories of oil and other products and $700 million during the next six years if certain conditions are met. The purchase will immediately add to MPC's earnings.

Four reasons MPC is a solid buy at $57 a share:

  • The stock is cheap at less than 8x forward earnings and just 7x operating cash flow.
  • MPC is selling near the bottom of its historical valuation range based on price/book, price/earnings, price/cash flow and price/sales ratios.
  • The stock yields 2.6% and has raised its dividend payout 25% in 14 months.
  • Consensus earnings estimates had already moved up some 20% for 2012 and 2013 over the last three months. This new purchase should garner more increases in estimates for 2013 and beyond.

Plains Exploration & Production (PXP) is an independent oil and gas company and develops oil and gas properties in the U.S.

Pickup from BP: Plains acquired BP's interest in three deepwater fields. The $6.1 billion deal nets Plains 67,000 barrels of oil equivalent (BOE) per day of production and 127 million barrels of oil equivalent (MMBOE) of proved reserves. It also provides significant new exploration opportunities in the Gulf.

Four reasons PXP is a good growth play at $36 a share:

  • Although Plains paid a decent price for BP's deepwater Gulf assets, it should be able to use the cash flow from the additional production to pay off the acquisition debt in the medium term provided oil prices remain at these levels. The 67,000 BOE per day of production significantly adds to the company's current 105,000 BOE/D, as well as to its oil reserves. It also substantially raises the oil & liquids ratio of production, which will also increase when the company is able to sell $1 billion to $2 billion of its onshore gas assets to reduce its acquisition debt.
  • The 13 analysts that cover the stock have a median price target of $52 a share, approximately 45% above the current stock price.
  • Prior to this acquisition, PXP was selling near the bottom of its five-year valuation range based on price/book, price/earnings and price/cash flow ratios.
  • Even though Credit Suisse has a Neutral rating on the stock, it says Plains will increase revenues 160% from 2012 through 2014. More importantly, modeling the new acquisition, the analysts expects more than $7.50 earnings per share in 2014.
Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Jensen was long MPC.

TAGS: Investing | U.S. Equity | Energy

More from Energy

Most Investors Can't Kick About the Markets in 2019

Bret Jensen
Dec 13, 2019 9:30 AM EST

Energy and manufacturing were soft spots, but the rising tide of the indices to all-time highs lifted many boats.

Stuck in a Tough Spot, Chevron Drills Down Strategy

Timothy Collins
Dec 11, 2019 11:55 AM EST

Company takes on challenges to cut risk and raise return, and now the technical picture shows it's primed for a quick $5 to $7 move over the next few weeks.

Enphase Energy Is My 'Stock of the Week'

James "Rev Shark" DePorre
Dec 9, 2019 1:58 PM EST

ENPH has had huge, quick growth.

With Saudi Aramco IPO, Saudis Have Another, Huge Reason to Support Oil's Price

Maleeha Bengali
Dec 9, 2019 8:53 AM EST

And we could be in the middle of the perfect storm for oil markets, where prices can rise aggressively through the first quarter.

Weakness After Protracted Upside Move Causes Discomfort

James "Rev Shark" DePorre
Dec 5, 2019 10:52 AM EST

Some traders seem unsettled by a bit of downside volatility after not experiencing much of it of late.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 10:10 AM EST BOB LANG

    Banking a Big Winner in SRPT, Rolling Up

    Nov. 20 here on the CC, I mentioned buying some Ma...
  • 10:36 AM EST GARY BERMAN

    Fibocall: How High Can Crude Go?

    On crude: I am looking for higher, but please b...
  • 08:20 AM EST BOB LANG

    Webinar Time - Talkin' Calendars, Butterflys

    join me later today after the market close as we t...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2019 TheStreet, Inc., 14 Wall Street, 15th Fl, NY, NY 10005

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login