In the market rally since the start of 2013, energy stocks have generally performed in line with the market.
Certain stocks have significantly outperformed, and I will discuss a few of them below and their reasons for outperformance.
Marcellus "Pure-Plays" Cabot (NYSE:COG), EQT (NYSE:EQT), Range (NYSE:RRC), Rex (NASDAQ:REXX) and Gastar (NYSEMKT:GST) have outperformed the market significantly so far this year, but for different reasons. Gastar has been the top performing of the set and EQT the bottom performing, but even EQT is up 17% so far this year.
Gastar has substantially outperformed, both the S&P and the other Marcellus "Pure-Plays". It had underperformed in 2011 and 2012 due primarily to legal issues. When those issues were settled recently (link) the stock shot up, but may still have room to run compared to the other Marcellus companies (link). Gastar also recently discovered a new, highly economic play in Oklahoma, where it expects wells to generate 58% IRRs at current commodity prices, where its second well in the play came on at twice the projected average rate, and where it recently acquired an additional 71,000 net acres at a low ~$500/acre. And Gastar recently bought back 10% of its stock at $1.44 per share, versus a current stock price of $2.79, a highly accretive transaction.
Cabot has outperformed due to top-tier well results in Susquehanna County, PA and due to rapid growth, having grown production 49% in 2012. (link) Cabot's wells have been extraordinary, generating high rates of return at low natural gas prices. And as natural gas prices rise, the rates of return on those wells get even higher.
Range Resources and Rex Energy outperformed due to great well results, as well as exposure to the emerging Utica shale play. Rex tested a Utica well at over 3,000 boepd (link). And beyond the Marcellus and Utica, Range has achieved excellent well results in the Mississippi Lime, which is becoming another core area for the company as some excellent wells are paying out in under a year. (link)
EQT has outperformed due to great well results in the Marcellus, as well as tighter spacing between wells, which delineates additional inventory in the core of its acreage position. (link) EQT has a conservative balance sheet and midstream assets that could potentially be spun out or sold, as EQT did to its utility division at the end of 2012. (link)
Mississippi Lime "Pure-Play":
Different from the Marcellus focused companies listed above, Petro-River (PTRC, previously GRAVF) has limited current production. But it has a core position on the eastern side of the Nemaha Uplift in Kansas of over 100,000 net acres. Petro-River started the year at $0.075 and most recently traded at $0.40, up 433% versus the S&P up ~10%. Obviously due to its small size, limited production and low stock price, it has inherent risks greater than the other companies mentioned. But it has also substantially outperformed them, and so is worth mentioning. The outperformance is likely driven by increasing evidence that the Nemaha Uplift is likely the core of the Mississippian play, which substantially increases the value of acreage in that area.
Disclosure: I am long GST, GRAVF.PK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. I am long GST and PTRC and may add to or reduce these positions or any other securities mentioned at any time without further notice