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What the $1.2B Argentina Investment Plan Means for BP Unit

As per Reuters, Pan American Energy – a subsidiary of British energy giant BP Plc BP – has decided to spend as much as $1.2 billion in Argentina this year. The amount is lower than the $1.4 billion invested in 2016.  

Vaca Muerta Fund Allocation

According to the company spokesman, almost $400 million of the investment budget will likely be allocated for exploration and production activities at the Vaca Muerta shale formation, located in the southern Patagonia area of Argentina.

Investors should know that the geologic formation has the second largest reserve of shale gas in the world. Mauricio Macri – the current President of Argentina – has been seeking prospective investors for the development of the shale area. The energy and mining minister of the country confirmed in April that around $6 billion to $8 billion will be spent in Vaca Muerta during 2017.

Benefits in Store

The exploration program in Argentina is likely to prove beneficial for the BP unit given that natural gas production is expected to rise in the near future. The demand for natural gas is rising all over the world as the commodity emits significantly less carbon dioxide than oil and coal when burned for generating energy.  

We expect the development to generate considerable cash flow for BP shareholders.

About the Company

BP is one of the largest integrated energy firms in the world and has a strong portfolio of upstream projects that are expected to fetch significant cash flow. The company expects the projects to add 800 Mboe/d to net production capacity by 2020, once online. It is to be noted that 90% of these upstream developments are either under construction or have been completed. Quarter-to-date, the stock gained 2.2% against 2.6% downfall for the Zacks categorized Oil & Gas-International Integrated industry.  

However, the oil spill incident of 2010 in the BP-operated Macondo prospect continues to affect the company. Although BP has cleared the substantial litigation expenses related to the spill, it had to divest some of its best properties.

Zacks Rank & Key Picks

Currently, BP carries a Zacks Rank #3 (Hold).

A few better-ranked players in the energy sector are Canadian Natural Resources Limited CNQ, Enbridge Energy Partners LP EEP and W&T Offshore Inc. WTI. Canadian Natural and Enbridge Energy sport a Zacks Rank #1 (Strong Buy), while W&T Offshore carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.        

We expect year-over-year earnings growth of almost 725% at Canadian Natural in 2017.  

Enbridge Energy beat the Zacks Consensus Estimate in three of the trailing four quarters, with an average positive surprise of 38.22%.

W&T Offshore had an average positive earnings surprise of 69.21% for the last four quarters.

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