The near free fall of natural gas prices since early this year has taken its toll on several natural gas stocks both large and small. I do not know how soon it will be before natural gas prices recover, but I do believe that natural gas has a very bright future and is trading at multi year lows. In order to survive, it is going to be important for natural gas companies to keep their total producing and finding costs to a minimum.
Below are a few companies that keep their cost low that you may want to consider for the recovery in natural gas prices.
Comstock Resources, Inc (CRK) may have been hit the hardest of the natural gas stocks I follow. The stock has been cut in half this year and trades at book value. The company currently has a market capitalization hovering around $1 billion. The primary exposure for the company is in the Haynesville Shale play with 78,000 net acres and the Bossier Shale play with 50,000 net acres. Comstock is also one of low cost producers, with total producing and finding costs of $2.77 per Mcfe, which should allow it to weather the storm. If and when natural gas prices recover, this stock should follow suit in a big way.
Chesapeake Energy Corporation (CHK) is for the investor that prefers the larger market capitalization in order to sleep at night. Chesapeake sports a market cap of nearly $15 billion, but has also been hit very hard with the decline in natural gas prices. Chesapeake is the second largest producer of natural gas trailing only Exxon (XOM). Most of the company’s production comes from the Haynesville/Bossier, Barnett, and Fayetteville shale plays, however the crown jewel of Chesapeake may be its large position in the Marcellus shale. In fact, Chesapeake is the largest leasehold owner in the Marcellus with 1.55 million net acres. The company does have nearly $10 billion in net debt, but appears to have the collateral to back it up. Chesapeake is a profitable low cost producer that has began shifting its focus from overwhelming producing natural gas to drilling in more liquids prone plays. This combination should keep a floor under the stock price until natural gas begins to recover.
Southwestern Energy Company (SWN) is the king of the low cost players with total producing and finding cost of less than $2 per Mcfe and is nearly a pure play on natural gas. This is another large cap stock with a market cap of roughly $11.5 billion. Southwestern derives most of its production from the Fayetteville shale play, but has significant leaseholds in East Texas, Conventional Arkoma, and the prolific Marcellus shale play. Unless natural gas prices continue to slide from these already low levels, Southwestern should be able to remain profitable through this lean time due to its very low producing and finding costs.
Double Eagle Petroleum Company (DBLE) is a much smaller company than the three previously discussed with a market capitalization of just under $49 million. Even with its small size, Double Eagle has managed to keep its total producing and finding down with the big boys. Nearly all of the company’s production is currently coming from the Atlantic Rim and Pinedale Anticline plays in Wyoming. Both plays appear to still have plenty of future growth remaining. However, the true long-term catalyst for this stock may be its 70,000 net acres in the Niobrara Shale play. Other major players such as EOG Resources (EOG), Noble Energy (NBL), and MDU Resources (MDU) have already staked their claims in this up and coming play that many are comparing to the Bakken and Marcellus shale plays. As promising as this stock may sound, caution should be used due to the size of the company. This is not where you want to be if natural gas prices stay depressed for a long period of time.
Spindletop Oil and Gas Company (SPND.OB) is by far the smallest stock I am going to discuss with a market cap of only $11 million. While the drop in natural gas prices have caused this stock to decline to less than book value, the reasons for including this stock differ significantly from the others. The company only has 22,975 net acres primarily located in Texas with additional smaller interest located in various other states. What makes Spindletop interesting are a few assets other than natural gas. First of all, the company has $1.13 per share in cash and a stock price of only $1.45. In addition, the Company owns its headquarters building just off the LBJ Freeway in Dallas, Texas. The 27 year old building sits on 1.4919 acres and has 46,286 rentable square feet and is only on the books for $1.8 million. The company occupies 10,317 and leases the remaining space to third party tenants. The company also owns 26.1 miles of natural gas pipelines in Parker, Palo Pinto, and Eastland Counties, Texas. I estimate the cash and true value of the building is worth nearly $1.45 giving you the oil and gas reserves for free. Please keep in mind this is a much smaller and very thinly traded stock so the risk is much higher than the other companies I discussed earlier. While I recommend limit orders when buying or selling any stock, limit orders are a must when buying or selling Spindletop.
Disclosure: The author has long positions only in MDU and SPND.OB at the time of the writing.