I have been hearing plenty about several oil companies that have been crushing the market as of late. Everyone is familiar with Samson OIl and Gas (SSN), which is up over 800% the past 52 weeks. If you think the way I do, you are a little worried holding onto this name, as it's easy to fear the pullback. Stocks that have moved like Samson has will eventually pull back. Some investors get upset when this happens, but stay focused and a few tips will get you through.
First and foremost, has anything changed in the stock? On March 2, 2011, Samson pulled back significantly from a high of $3.96 down to $3.33. I found myself searching for any information that led to the collapse in the stock, but eventually I realized the stock was OK, and still is.
The second issue is valuation, and what the stock is worth. Which would lead an investor to check the price of oil, or better yet reports that the economy will lag. If the price of oil gets too high, people will not be able to buy as much stuff because they are putting their money in their gas tanks. It's easy to believe that if oil goes up all oil stocks have to go with it. This is not the case if the price of oil impedes overall economic improvement.
The third and last issue is downgrades, or reports that are bearish on the sector. If Chesapeake (CHK) is downgraded based on its holdings in the Niobrara, this could negatively affect Samson's outlook in that same area. For now, I am going to start to take some profits in Samson and other core oil holdings, but do plan to buy dips. There are several other names that I have interest in, that have had a terrific 52 weeks within the oil space. The first is a company that many have asked me about, but I have not evaluated. This company had the second highest 52 week return after Samson.
Voyager Oil and Gas (VOG) is another in a long list of Bakken players. I have covered many in this space for one reason, there is a ton of oil there. Voyager has some interesting similarities to Northern Oil and Gas (NOG). It seems Voyager has a non-operator model just like Northern's. Voyager has 24000 net acres in the Bakken/Three Forks formation. This company has said it is actively acquiring more acreage here. Voyager participated in 18 wells last year and is estimated to do 50 (5 Net) gross wells this year. An estimated well cost in this area is $7 million.
Voyager also has a holding in the D-J Basin in the Niobrara. This is another exciting area. Voyager has 14200 net acres split 50/50 with Slawson Exploration. 1.5 net wells were participated in last year and another 11 net wells will be participated in this year. Voyager estimates a well here will cost on average $3.2 million to drill. Voyager has a shallow gas area in Montana, at Tiger Ridge. It has 65000 net acres under lease here and $250000 to drill and complete a well. The Heath formation in Montana, is the location of 33500 net acres for Voyager. Voyager contends that the shale here is much like the Bakken. Voyager is planning to wait until other operators do enough wells to complete wells properly, then sign them to a contract to drill at this location.
Voyager has had several good partners with respect to its acreage in the Bakken. The majority of its Bakken holdings are in Williams and McKenzie counties in North Dakota, and Richland County in Montana. Voyager has had equal partnerships with EOG Resources (EOG), Oasis (OAS), Slawson (private), and Brigham (BEXP). All of which are considered to be tops in the area of cracking the shale code. Voyager has 2 net Bakken wells available for drilling and 2 net Three Forks wells available for drilling, This current 24000 net acres with 320 acre spacing would produce 150 net wells. From January 2010, to January 2011, the rigs operating in North Dakota have doubled. If $85/barrel of oil is used, an estimated time of payout on Bakken wells is approximately 25 months. Gross EUR/well is 500 MBoe. Net asset value per well is $6 million.
New horizontal techniques have opened up opportunities in the Niobrara also. Voyager's 14200 net acres cost on average $500 per acre. 2 net Niobrara wells are available for drilling. 320 acre spacing would produce 45 net wells. Voyager expects to participate in 22 gross or 11 net wells here in 2011. Well economics here are also good. Gross EUR/well is 400 MBoe. Wells cost on average $3.2 million. Net revenue interest of 80%. Net asset value per well is $7.9 million. Anticipated time of payout is 6 months. $85 oil and $5 gas used in assessment of well metrics.
Voyager's Heath oil shale project is very interesting. This acreage is next to EOG's leasehold, which helps to solidify it as a real play. New wells are being drilled here, so we should know more soon.
Voyager's non-operator model is much like Northern Oil and Gas. This is significant as we are beginning to see this works well. NOG has been able to keep costs down significantly with this approach. If Voyager does the same with these holdings it could have more upside going forward. In the meantime watch this name. It is difficult to valuate this company as there are no analysts covering the stock, and areas like the Heath and the D-J basin have not had enough traffic to know how valuable the acres are. This is currently a 250 market cap company and although I do not currently own any, I will continue to watch this stock.
Lucas Energy (LEI) has a market cap of 82 million. On March 8th this stock did something that I look for when evaluating a company that is going through a change. First of all this company traded up on an overall market tape that was bearish. Not only did it appreciate significantly (16.75%), but it did it on volume much higher than the stock normally trades. Lucas is a play on the Eagle Ford. They have 14200 net acres. The reason why the Eagle Ford creates excitement is it is a fairly easy drill, with moderate production. Basically this means it takes less cash up front, which can decrease significantly the amount of time it takes for revenue to pay for the well. This acreage was acquired for $300/$400 per acre and now could sell for as high as $10000. Over 99% of this company's revenue is from liquids. There has been significant activity in the area of Lucas' holding:
-June 2010, KKR Financial (KFN) invests in 100000 acres for $6000/acre
-June 2010, Reliance Industries invests in 125000 acres for $11000/acre
-October 2010, Statoil (STO) and Talisman Energy (TLM) invests in 97000 acres for $10900/acre.
-October 2010, CNOOC (CEO) invests in $10800/acre with Chesapeake (CHK)
-October 2010, Plains Exploration (PXP) acquires 60000 acres for $9600/acre
One word comes to mind when speaking of the Eagle Ford and that is economic. The low cost drilling has made it a favorite of many. Currently there are 99 rigs drilling this shale. In January 2009, there were only 15. Lucas' assets are located in the liquid window. This area has IP rates up to 1220 Bopd.
Lucas signed a joint venture with Hilcorp Energy. This deal gave deeper rights to the property to Hilcorp while Lucas maintained the shallow rights. Lucas retained 15% working interest. The proceeds allowed Lucas to acquire new acreage. In September 2010, an internal NAV calculation was done stating Lucas was worth $5.98/share. This calculation was done when oil was much lower then it is today, and could prove bullish for this stock. This NAV is backed up by a report done in February 2011, where Princeton Research stated this calculation to be $6/share. In summary Lucas has several things going for it. The first is its Eagle Ford exposure. Not only is it an up and coming area, but oil is heavily weighted. Lucas is currently increasing production and has no debt. I cannot stress enough, to be careful with names like this. It is a smaller company, and momentum traders will move this around quite a bit. Lucas didn't begin its run until the 1st of March, so there may be some movement left in this stock.
FX Energy Inc (FXEN) is another interesting name. The reason is that it is a play on natural gas. The great thing isn't the natural gas, but it is being drilled in Poland. This matters because the price of natural gas varies significantly from country to country. Gas is not an easy transport like liquids so prices vary from location to location. FX has over 25 licenses on 3.8 million acres. It seems FX was in early, and based on information they went for the conventional areas first. Now there are several big names in this area buying up unconventional properties:
Talisman Energy (TLM)
The reason FX may be able to drive earnings is the gas shortage in Europe, which has led them to buy gas from Russia. There is a current pipeline being built and when this is finished there should be a quick ramp up in production. The main reason Poland had not been explored earlier is because it was occupied by the USSR for so long. Companies are just starting to realize there are hydrocarbons there.
Europe currently imports half of its gas supply from Russia. Poland imports two-thirds of its gas supply from Russia. Margins are much better in Poland with respect to gas due to lower taxes and royalties. Seems Poland wants to increase energy production due to worries about being dependent on Russia. Production is increasing; in 2010 production was 10.5 mmcfe/day net to FX. 2011 is forecast is 16 mmcfe/day. In 2012 this number is estimated to increase to 18 mmcfe/day. The gas environment is not what it once was, but there could be significant upside as FX has a large acreage. It seems Poland has a much better atmosphere with respect to supply and demand.
All of these names have had a terrific run over the past 52 weeks. Much of these moves were recent, and may see a decent size pullback in the near future to provide a buying opportunity.