The price of oil continues to go higher. For the past six months, it has been hard not to be bullish on the oil exploration and production stocks. Now that oil is priced over $105 per barrel, it may be difficult to know what stocks have a forward valuation that is sustainable when the market has a downward correction. The P/E and forward P/E ratios give an idea of how much an investor is paying for a stock's earnings, but in the case of growth stocks, the PEG ratio can be a better indicator.
The first stock is Brigham Exploration (BEXP). Brigham has what may be the best management team in the Bakken. The company has beat analyst expectations for four straight quarters. Brigham also outperforms the competition drilling wells. Brigham consistently has higher IP rates, longer laterals and more stages. Brigham started purchasing Bakken leaseholds in 2005. By doing so the company acquired acres at low prices. Brigham: Outstanding Drilling Results in the Bakken Shale is a more in depth article about this company. Analyst estimates have Brigham growing 40.8% per year for the next five years. Brigham's valuation metrics are:
2011 Annual EPS Growth-91.7%
Northern Oil and Gas (NOG) is a non-operator. By being a non-operator, Northern needs fewer employees. This model has better margins, as Northern doesn't have to pay for seismic, legal, engineering, etc. It is very important to partner with a good operator and it seems Northern has done this as it has a 100% success rate. As with Brigham, Northern also purchased much of its leasehold early, and also purchased acres for a fraction of what they are worth now. Northern is a pure Bakken play and is averaging well over 90% oil. This stock has been hit hard by insider stock sales and missed earnings estimates for the last two quarters. Long term, this stock is an excellent buy. Northern Oil and Gas: Benefiting From Bakken Non-Operator Model is a more in depth article on this stock. Analyst estimates have Northern growing 25% per year for the next five years. Northern's valuation metrics are:
2011 Annual EPS Growth-251.6%
Clayton Williams Energy (CWEI) is my favorite company outside the Bakken. This company has 166400 net acres in the Eagle Ford. Clayton purchased these acres in 1996, and purchased the acres cheap. The Eagle Ford is a low risk shale play with moderate return. Wells can be completed here for less than half the price of a Bakken well. Although Eagle Ford wells have a lower estimated ultimate recovery, lower costs allow the operator to make a profit more quickly. Management has done a very good job. Clayton has beaten quarterly estimates for four straight quarters. Clayton Williams Energy: Significant Growth Aimed at Oil Production is a more in depth article on this stock. Clayton's valuation metrics are:
2011 Annual EPS Growth-68.9%
GeoResources (GEOI) has positions in the Bakken and Eagle Ford. It recently missed earnings, which created a pullback in the share price. In the three previous quarters, GeoResources either beat or met analyst expectations. GeoResources is in two very good shale plays, and has years of inventory. GeoResources: A Play on Eagle Ford and Bakken Shales is a more in depth article on this company. GeoResources' valuation metrics are:
2011 Annual EPS Growth-25%
Rosetta Resources (ROSE) is a company creating growth through the Eagle Ford. Wells here have been inexpensive to drill, and are 77% liquids. Rosetta has 64860 acres in the Eagle Ford. Rosetta has 300000 acres in the Alberta Bakken. Rosetta recently missed quarterly earnings, but it made earnings the previous three. Barron's recently highlighted this stock in Energy Stock Picks for $100-per-Barrel Oil. Another more in depth article titled Rosetta Resources: Eagle Ford Will Provide Years of Success was written this past February. Rosetta's valuation metrics are:
2011 Annual EPS Growth-173.2%
PDC Energy (PETD) is an example of a natural gas exploration and production company switching to liquids. Last year PDC produced only 20% revenue from liquids. This number will increase to 35% by the end of this year. Management has done a very good job of hedging gas production, but this company has missed its past three quarterly earnings. PETD has leaseholds in the Wolfberry (10500 acres) and in the Niobrara (70000 acres). PDC Energy: Natural Gas Hedges and Increased Oil Production Spells Growth is a more in depth article on this company. PDC Energy's valuation metrics are:
2011 Annual EPS Growth-206.7%
EOG Resources (EOG) has large leaseholds in many of the best shale plays in the United States. EOG is the leading oil producer in the North Dakota Bakken, Niobrara, Eagle Ford, and Barnett Combo. Its acreages are:
Bakken/Three Forks-600000 acres
Eagle Ford-500000+ acres
Niobrara- 320000 acres
Barnett Combo-160000 acres
Leonard Shale-120000 acres
EOG has done a very good job of purchasing large positions in oil shale plays. It has made the change from natural gas to oil in a very short period of time. This company has substantial gas assets, which it has reduced production of, but can increase if gas prices rise. EOG has made or beat earnings two of the last four quarters. EOG Resources Ahead of Its Industry: Major Production Shift to Liquids is a more in depth article on this stock. EOG's valuation metrics are:
2011 Annual EPS Growth-270.7%
Abraxas (AXAS) is an oil and gas exploration and production company in several different shale plays in the United States.
Eagle Ford-8333 acres
Alberta Bakken-10000 acres
Management is a concern as Abraxas has missed four straight quarterly earnings. However, the company has acreages in some of the best locations in the United States. This company has the lowest PEG ratio of the group. Abraxas Petroleum Built Around Solid Assets fully explains this company in better detail. Abraxas' valuation metrics are:
2011 Annual EPS Growth-540%
Gulfport Energy (GPOR) is a well diversified oil and gas exploration and production company. It has five areas of operation:
Permian Basin-13923 net acres
Niobrara-24468 net acres
Canadian Oil Sands-131901 net acres
Thailand-4 million gross acres
Southern Louisiana-13998 net acres
Management is performing well and this stock has excellent assets, which are 95% oil weighted. Gulfport has beat earnings three out of the last four quarters. Gulfport Energy Corporation: Value Play on Diversified Assets is an article that better explains this company. Gulfport's valuation metrics are:
2011 Annual EPS Growth-87.9%
Whiting Petroleum (WLL) is a company with large Bakken assets. Whiting is the number two producer in the state of North Dakota (EOG is #1). In Oklahoma, Whiting is the #5 and #16 in Texas. Whiting is a well diversified company. It has assets in the:
Rocky Mountains-583693 acres
Most of Whiting's Rocky Mountains acres are in the Bakken/Three Forks. The company has established an oily foothold in some very good unconventional plays. Whiting Petroleum Will Continue to Grow for Years to Come is a more in depth article on this company. Whiting's valuation metrics are:
2011 Annual EPS Growth-50.2%
In summary, all of these companies have large P/E ratios, but with growth to support it. Many of the charts in this sector are leveling off, so be careful about throwing money in right now. Wait for a pullback in the short term, and look for quality growth names at that time.
Disclosure: I am long BEXP, GEOI, CWEI.
Additional disclosure: All stock metrics were garnered from Yahoo Finance. This is to be used as a list of stocks that fit a specific interest, and should be used as a guide and not a buy recommendation. Before purchasing any stock, urge the investor to study the company at length to determine its investment worthiness.