3 Oil Explorers Forecast to Gain 60%

 |  Includes: ATPAQ, PVAHQ, SD
by: David White

Three oil developers that could deliver 60%+ price gains in the next year are ATP Oil & Gas Corp. (ATPG), SandRidge Energy Inc. (NYSE:SD), and Penn Virginia Corp. (PVA).

ATPG is an international offshore oil and gas development and production company focused in the Gulf of Mexico, the Mediterranean Sea, and the North Sea. As of Dec. 31, 2010, it had estimated net proven reserves of 126.4 million barrels of crude oil equivalent.

SandRidge is an independent oil and natural gas company in the U.S. It has natural gas and oil reserves in the West Texas Overthrus (WTO) and the Permian Basin. It has a drilling segment. It drills oil and natural gas wells for other companies. SD has a Midstream Gas Services segment. Its oil strategy is to drill low risk, shallow wells. SandRidge has more than 900,000 Mississippian acres and 200,000 Central Basin Platform (Permian Basin) acres. The company plans to expand both of these near term. In the Mississippian its statistics are 300-500 (the average is 409) Mboe/well E.U.R. (52% crude oil) with an average of $3 million/well in drilling and completion costs. On July 28, 2011, SandRidge reached a new production high in the Mississippian of 15,720 Boepd. SD has more than 4000 potential locations left to drill in the Mississippian and realizes an average NPV per Well of $5.6 million. SandRidge is in the play for $200/acre.

Penn Virginia is an independent oil and natural gas company. It explores in Texas, Appalachia, the Mid-Continent, and Mississippi. It primarily focuses on developing the Eagle Ford Shale play in south Texas and the horizontal Granite Wash play in Mid-continent. It is also drilling in the Marcellus Shale play in Appalachia. As of Dec. 31, 2010, the company owned 1.2 million acres of leasehold interests. Like Chesapeake Energy (NYSE:CHK), PVA’s plan is to grow its oil production side of the business. In 2010 approximately 18% of PVA’s production was oil and NGL’s. In 2011 PVA expects to raise that percentage to 25% to 30%. This sounds like a solid plan.

Let’s take a look at some of the financial fundamentals of these companies. The data in the table below are from Yahoo Finance. 









1 year Analysts’ Target Price




Gain Forecast












Analysts’ Opinion




Q2 Beat/Miss

-$1.11 vs. an estimate of -$0.38

$0.00 vs. an estimate of $0.03

-$0.26 vs. an estimate of -$0.25

EPS Growth in 2011




EPS Growth in 2012




5 yr. EPS Growth per annum




Market Cap




Enterprise Value
















Click to enlarge

Unfortunately the above fundamental financial data tend to warn me away from ATPG. The market cap is a small fraction of the Enterprise Value. This means it has a lot of debt. In fact from TD Ameritrade its Total Debt/Total Capital is 87.48%. Plus it has little ability to service its debt with an Interest Coverage ratio of 0.17 and a non-existent Quick Ratio. I would stay away from this company, especially in troubled times. With a 37% Short Interest it may get some short squeeze pops, but its huge Q2 miss is an indication of how troubled it really is. I’m not sure where the analysts’ target price came from.

SandRidge is another heavily indebted company with a Total Debt/Total Capital ration of 61.69%. It too has little ability to service its debt. This can be a problem in troubled times. If the U.S. goes into a second recession this company will likely get hit hard. On the other hand, SD should see good growth going forward. SD’s statistics on its Mississippian play are truly outstanding. Plus it has a new JV partner, who is picking up a significant amount of the development costs in this field. Further, SD got into its 900,000 acre Mississippian position at $200/acre. Much of this will still be on the books at that value. Conservatively one would have to value SD’s Mississippian acres at at least 10 times that value. Add SD’s 200,000 net Permian acres to this, and you have great book value. SandRidge’s 8.89% Short Interest may just serve to allow some to short squeeze it upward on good news. Since it seems likely to have a good amount of positive news in the future, the analysts’ price gain forecast seems reasonable. This is a stock a sharp investor might consider buying, although I would personally feel a lot better about the stock if the economic times were better.

Penn Virginia is another big debtor company. It has a Total Debt/Total Capital Ratio of 34.77% (not too bad). For now it can service this debt off its balance sheet, but it cannot begin to service the debt from its day to day operations. With 19% short interest, I would be scared away from this stock. It has some positives, but it is too worrisome in these troubled times. It does not have the clarity of direction that SD has. Plus its 5 year EPS Growth Estimate per annum is only 5%. I don’t think the possible gain from this stock is worth the risk it represents. Further, the chart of PVA shows a strong downtrend of many months duration. It is usually a good idea not to fight the trend.

In sum, the analysts could prove me wrong, especially if the economic outlook in the U.S. and in Europe improves. However, the only one of the above three stocks I would put my money in at this uncertain time is SandRidge Energy, and I would be a little uneasy about that. Legging into this stock might be an appropriate strategy. You definitely want to be careful investing for the next few days. 

Good Luck Trading.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SD over the next 72 hours.