NEW YORK, NY -- (Marketwire) -- 11/24/11 -- Oil and gas explorers have turned to more profitable business segments in recent quarters. With natural gas prices stagnating this year, explorers have focused on the more lucrative oil and liquids markets to keep profits strong. Natural gas prices could be due for a turnaround in the near future, however, as demand is expected to surge. The Bedford Report examines the outlook for companies in the Oil and Gas sector and provides equity research on BP PLC (NYSE: BP) (LSE: BP) and ConocoPhillips (NYSE: COP). Access to the full company reports can be found at:
The US Energy Information Administration (EIA) has observed markedly higher levels of volatility in the pricing of WTI crude since early August. This coincides with similar volatility in global stock markets in the wake of the US and European debt crises, and highlights the extent of the correlation that has developed between financial and oil markets. The price of oil ended last week lower than it began, despite a surge of trading that temporarily pushed crude above $100 at midweek for the first time since July.
Gas prices, meanwhile, have remained low for most of 2011. As a result, several high profile oil and gas explorers are increasing production of more lucrative oil and liquids as oil trades at its highest level relative to gas. US oil production will reach 5.92 million barrels a day in 2012, up 4 percent from 2011 and the highest amount since 1998, according to the US Energy Department. Meanwhile Gas output is forecast to grow a mere two percent to 66.87 billion cubic feet a day in 2012, slower than the 6.1 percent increase this year.
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While in the doldrums at the moment, gas demand is expected to surge higher in the long term. The retirement of coal-fired plants due to toughening environmental standards in the US would increase the share of total electric power generation fueled by natural gas by 6 percentage points, according to Fitch Ratings.
ConocoPhillips said its third-quarter profit fell about 14 percent as China forced Conoco to suspend production in the Bohai Bay after discovering an oil spill in June. Meanwhile its operations in Libya also were shut down this year as a rebellion swept through the country. Conoco has been selling assets to focus on more profitable operations. It expects to complete the transformation next year by splitting into two companies -- an exploration and production business and a separate oil refining and pipeline company.
BP PLC reported that third-quarter profits more than doubled thanks to higher oil prices, with the chief executive saying the results marked a turnaround from the disastrous Gulf of Mexico oil spill. Last month the company won its first US permit to drill a new oil well in the Gulf of Mexico's deep waters, clearing the way for the company to resume exploration after the record offshore spill last year.
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