Everyone has heard of, and many folks know about big oil and gas companies like Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX). But more interesting and more compelling stories lie with smaller oil and gas companies. I will look at five of those, determining which are most suitable for investment.
Caldive International, Inc. (NYSE:DVR)
DVR trades on the NYSE at about $2.50 per share, near the low end of its 52 week range of $8.19 to $1.50. DVR has a market capitalization of just over $230 million, and has not declared a profit in two years, so has no P/E calculation. It pays no dividend.
DVR specializes in supporting platforms and work related to offshore oil drilling. Its business took a significant hit with the closing of much of the Gulf of Mexico to new drilling. While DVR has sought to replace that with efforts in Australian waters and with a 2012 contract with Mexican state firm Pemex for a new pipeline, DVR is unlikely to profitable to any degree as long as production growth is fallow in the Gulf of Mexico.
An effective measure of DVR's travails is found in the degree to which has been actually using its fleet of boats. For the third quarter of 2010, DVR utilized 69% of its shipping fleet on a calendar day basis. In the third quarter of 2011, that same ratio fell to 49%. DVR lost $34 million in the third quarter of 2011, has only $7 million in cash on hand, and is relying on bank debt to meet its working capital needs. While Jim Cramer likes this stock, I do not.
Penn Virginia Corp. (PVA)
PVA is listed on the NYSE, where it currently trades at a little under $6 per share, near the low end of its 52 week range of from $18.80 to $4.35. Its market capitalization is about $264 million, and it has lost money consistently in the past two years, so its P/E is meaningless. Despite the losses, PVA continues to pay quarterly dividends of $0.05625 (22.5 cents per year) for an annual yield of 4%.
PVA is a domestic driller of oil and natural gas. In the third quarter of 2011, PVA declared a net loss of $6.7 million, or $0.15 per share. When compared to the same quarter in 2010, it lost a little over $30 million, or $0.66 per share. The 2010 quarter was weighed down by non recurring charges of over $35 million from the sale of assets.
PVA failed to meet its targets for natural gas due to equipment shortages, thus its revenues from oil have been greater of late than revenues from gas. This has been remedied, and gas extraction-- largely through the controversial practice of hydraulic fracturing, or “fracking”-- is ongoing. Courts and legislatures may or may not put restrictions on fracking. One should look carefully at this issue before making any investment decisions.
PVA's balance sheet has obvious shortcomings. Chief among them is that debt outweighs cash by nearly a 20-fold margin.
Natural gas surely has its upside. Its carbon signature is far less than oil's, and its uses for electrical generation and transportation are evident from an environmental perspective, as well as an energy security perspective. There are healthier companies to invest in for individuals seeking to invest in that sector.
Exterran Holdings, Inc.(EXH)
EXH is listed on the NYSE, where its shares have been trading at a little over $11, toward the lower end of its 52 week range of from $27.00 to $8.07. Its market capitalization is just over $700 million, and it has not recently posted earnings so its P/E is meaningless. It pays no dividend.
EXH is more of a pure natural gas play, and must deal with the same fracking issues as described above. It recently released its third quarter report, which positively surprised analysts enough that the stock price rose 20% the day of the report. It reported a narrowed loss on continuing operations of about $30 million, or 48 cents per share. It reported sharply higher revenues as well, and at this rate it is likely to have a profitable 2012.
Through the spring and into the summer of 2011, EXH has traded in the mid to upper 20s per share. With some patience, and continued momentum in upstream revenues, EHX may just march back up toward that range again.
Marathon Oil Corporation (NYSE:MRO)
MRO is traded on the NYSE, priced at a little under $27 per share. Its 52 week range was from $54.33 to $19.13. That is a bit misleading, as on June 30, 2011 MRO spun off its downstream refining operations to its shareholders. As part of that transaction, the stock price of the now smaller MRO was adjusted downward by $20.70. Its “adjusted” 52 week high is rightly $33.73. MRO is now has a market capitalization of just over $19 billion, and a current P/E ratio based on trailing earnings from continuing operations of only 11.5. It pays a current annual dividend rate of $0.60 per share, for a yield of 2.3%
MRO recently released its third quarter, 2011 results. Adjusted for continuing operations only, revenue increased from nearly $3 billion in the third quarter of 2010 to $3.8 billion in the third quarter of 2011. Income fell from $696 million in the 2010 quarter to $405 million in the 2011 quarter.
The attraction of MRO shares, other than management's decision to focus on production, is its portfolio of future projects. It is heavily invested in Canadian tar sands, Angola, and Norway, as well as offshore Gulf regions. MRO should have no problem replenishing reserves through the balance of the decade.
For a major oil producer, MRO is somewhat speculative due to the nature of its metamorphosis a few months back. But MRO has long been a strong oil and gas producer, and I look for that to continue. Buy on price weakness.
Ivanhoe Energy, Inc. (NASDAQ:IVAN)
IVAN shares are listed on NASDAQ, and were trading recently at about $1.25 per share. Shares are near the low end of the 52 week range of $3.67 to $0.84. It has a current market capitalization of $427 million, and no P/E ratio as it has been losing money of late. It pays no dividend.
IVAN has not yet released its third quarter results for 2011. In the second quarter it posted revenue of about $9.5 million, about 50% higher than it posted in the second quarter of $2010. Due to increased exploration costs and lower derivatives revenue in the current quarter, it lost $4.1 million, versus a profit of $9.2 million in the second quarter of 2010. I see little forward momentum for IVAN, and believe better choices exist in EXH and MRO.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.