--Sell 100 shares of Chevron (CVX:NYSE) at $124.24
This is a follow up to our Marathon Oil (MRO:NYSE) purchase.
We recently took gains in Noble (NBL:NYSE) and after you
receive this Alert we will trim 100 shares of Chevron
(CVX:NYSE) at $124.24, which helps to fund our new position
in Marathon Oil.
Marathon is an independent oil and natural gas
exploration-and-production company. It has exploration
activities in the U.S., Norway, Equatorial Guinea, Poland,
Angola and Iraqi Kurdistan. It has production activities in
the U.S., U.K., Norway and Equatorial Guinea. In the U.S.,
its big focus is on the liquids-rich shale plays, including
Bakken and Eagle Ford. It also has interests in Athabasca
oil sands in Canada and Waha Oil Company in Libya. The
company spun off its downstream division, Marathon
Petroleum, in 2011 and after heavy investment spending over
the last few years, we believe the company is now more
focused to grow production at an accelerated pace that isn't
priced into the stock.
The MRO story is all about the U.S. production potential as
international will likely remain flattish over the coming
years. Of particular interest are the Eagle Ford and Bakken
shale assets. It has 204,000 net acres in Eagle Ford, where
the company has production to 100 million barrels of oil
equivalent per day from nothing three years ago. It expects
to see production to reach 155 mboe/d by 2017. This
double-digit production growth in itself is impressive, but
the company also is one of the better operators in the
region on the cost side and could get its wellhead costs
down to the $6.5 million area from $8.5 million. The
combination of higher production and lower costs should lead
to better operating leverage over time.
In 2013, the company's finding-and-development costs fell
from $23 boe/d to $16 boe/d, which all came from the low
cost positioning in the U.S. The Bakken exposure is 370,000
net acres, where production has doubled over the past three
years to 40 mboe/d. Its guidance is for an increase to 70
mboe/d by 2017. Costs are near industry lows and investments
in technology as well as efficiency initiatives should lead
to better earnings and returns. The company also has 180,000
net acres in Oklahoma resource plays and has aggressive
plans to build this out as well but off of a lower base; it
should produce 14 mboe/d this year to 35 mboe/d over the
next few years.
International production will be 250 mboe/d this year and
remain flattish in the next several years. But it will spend
$500 million per year to drill 10 exploration wells in
Kurdistan, Poland and Indonesia -- which could provide some
upside -- although we are not baking that into our models.
The one wild card could be the contribution from Libya; it
will certainly be the most volatile part of its portfolio
given the uncertainties in the Middle East, but it is a
small piece of the portfolio (low-single digits). Also, the
company is currently looking to sell its North Sea assets
(it plans are a sale by the end of the year). Proceeds would
be used for buybacks and/or dividend increases. The yield at
2% certainly is a priority by management to increase. The
company announced a $1.2 billion additional buyback in
December and has $2.5 billion in total authorization.
As the company focuses on growing its U.S. production,
keeping costs low and improving returns, we see upside to
the valuation. Shares trade at 3.9x EBITDA , in line with
its 10-year average, but the historicals are difficult to
compare due to the downstream spin. We'd argue that MRO is
the faster-growing, more consistent earnings performer and
should trade higher than 3.9x EBITDA, especially given its
potential for growth acceleration. It may not come this
quarter, but we see it happening over time. So we'll start
with a small position here and add opportunistically.
After our trade, we'll own 725 CVX shares, or 3.3% of the
Jim Cramer, Stephanie Link, and TheStreet Research Team
DISCLOSURE: At the time of publication, Action Alerts PLUS
was long CVX, MRO.
Please note that the most recent purchase is Goldman Sachs, not General Electric
We will add to four holdings and add a new position in Marathon Oil.
This week we put to work some of our large cash position and added to a variety of names.
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics
while giving advanced notice before every trade.
Access the tool that DOMINATES the Russell 2000 and the S&P
David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a
reliable AND significant income stream.
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a
comprehensive look at the market, and fundamental and technical analysis.
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and
strategies to help you become a well-seasoned trader.