ConocoPhillips (NYSE:COP) signed an agreement with Sempra Energy (NYSE:SRE) to acquire a 30% stake in the latter's proposed liquefied natural gas (AMEX:LNG) facility in Port Arthur, TX.
The agreement represents a major expansion of ConocoPhillips' global LNG business through investment in a massive LNG facility currently being developed by Sempra Energy.
The Western sanctions on Russia over its invasion of Ukraine have strained an already undersupplied market and put natural gas prices at record highs. Hence, oil and gas producers in the United States are rushing to back projects to boost the development and exports of LNG.
As part of the deal, ConocoPhillips will acquire five million tons per annum (Mtpa) of LNG produced by the Port Arthur LNG project. The company might provide additional gas supply services to the Port Arthur LNG facility.
The project's first phase would have two LNG trains, storage tanks and facilities, with a production capacity of 13.5 Mtpa of LNG. Construction activities are expected to commence in mid-2025. The deal would also enable ConocoPhillips to acquire a stake in the project's second phase, bringing the total LNG capacity to 27 Mtpa. The Phase 2 project is currently under development.
The agreement allows ConocoPhillips to participate in the leading LNG development projects. It strengthens the company's commitment to helping meet the world's energy supply requirements for a low-carbon future.
ConocoPhillips and Sempra Energy will also assess the development of low-carbon projects, which include a carbon capture and storage project for the Port Arthur LNG facility. Sempra would be able to participate in carbon capture and sequestration projects developed by ConocoPhillips in Texas or Louisiana associated with the Port Arthur LNG project.
Sempra Energy owns one of the largest energy networks in North America, with more than $72 billion in total assets at 2021-end. The company is advancing the global energy transition by electrifying and decarbonizing the markets it serves, including California, Texas, Mexico and the LNG export market.
Price Performance
Shares of COP have underperformed the industry in the past three months. The stock has lost 20.2% compared with the industry's 18% decline.
Zacks Rank & Stocks to Consider
ConocoPhillips currently carries a Zack Rank #3 (Hold).
Investors interested in the energy sector might look at the following companies that presently sport a Zacks Rank #1 (Strong Buy).
Houston, TX-based Patterson-UTI Energy, Inc. (NASDAQ:PTEN) is an oilfield services company. As of 2021-end, PTEN's contract drilling backlog in the United States was $325 million. This was 8% higher than its backlog as of Dec 31, 2020.
Patterson-UTI's long-term debt is around $852 million. As of the end of the first quarter, the company's debt-to-capitalization of 35.1% was quite conservative versus 38.1% for the sub-industry to which it belongs. Apart from low leverage for its industry, Patterson-UTI has $600 million available under the revolving credit facility. Also, PTEN has a comfortable debt maturity profile, with no major debt outstanding until 2028.
Cactus Inc. (NYSE:WHD) manufactures, designs and sells wellhead and pressure control equipment. The company's board declared a quarterly cash dividend of 11 cents per share. This reflects an increment of 10% from the prior dividend payout.
At the first-quarter end, Cactus had cash and cash equivalents of $297.7 million, which can provide it with immense financial flexibility. The company has a strong balance sheet and revealed that it has no bank debt outstanding as of Mar 31, 2022.
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