Oil and Gas stocks have seen quite a bit of volatility as of late. Word has it that production for 2012 in the United States may not be as good as that in 2011. Additionally, there appears to be an oversupply of natural gas due to the warm spell experienced over much of the United States in the last few months, and according to John P. Herrlin, Head of Equity and Gas Research at Societe Generale's Corporate & Investment Banking, half of all gas being supplied is coming from wells that have been drilled in the last 3 years with shales accounting for a quarter of current production. Given this, we take a look at five Oil and Gas players in the field and their relative positioning:
SandRidge Energy (SD) - SD is an active exploration and production company with a market capitalization of $3.32B. At time of writing this, their share price was trading at around $8.06, in the middle of its 52-week range with a beta of 2.15. They have a high debt to equity ratio (95%) and low return on equity (16%) along with a low return on equity over 5 years (-131%), Despite this their operating cash flow appeared to be steady with major capital improvements making the biggest impact to their financial statements, causing them to post large net losses in 2008 and 2009. Of their competitors, they have the largest percentage of oil rigs dedicated to exploration, although they do not have the most rigs. At the beginning of January 2012, they closed a $1B joint venture deal with a subsidiary of Repsol, YPF, SA, an international energy company in Spain. Going forward into 2012, they seek to bring in more than $3.3B from revenue obtained through oil hedges. This number is through 2015. They also seek to further oil exploration expansion and to grow their production double digits. They also seek to continue their strategy of constructing low risk conventional reservoirs. We think they show promise.
Kodiak Oil & Gas Corp (KOG) - KOG is a Denver-based independent energy exploration company with a market capitalization of $1.9B. As of writing this, it was showing strong trading at around $9.20 down for the day, but was actually surpassing its 52-week range. KOG's price to earnings ratio is 50.83 with an earnings per share of 0.18 and a beta of 3.45 which clearly indicates activity on their part relative to the market. Their stock is on the move with their recent acquisition of further acreage in the Wyoming Bakken's area tapping into the potential that most investors are seeing in the area given the recent purchases of acreage by others. Kodak currently has a total of 155,000 acres in total now. And going into 2012, they look to keep expanding their exploration abilities by moving from 5 to 8 rigs by the end of 2012. They are also dedicating $585M to Capex. We see this as a favorable buy.
ATP Oil & Gas Corp (ATPG) - ATPG is a company engaged in the acquisition, development and production of natural gas and oil properties in the Mediterranean Sea, the Gulf of Mexico and the North Sea. It has a marketing capitalization of $350M. At time of writing this, they were trading at about $6.85, at the low end of their 52-week range . Their earnings per share is -7.61 and their beat 3.1. According to this analysis on Seeking Alpha, their recent announcement to spend $30M on a 40% interest in an offshore natural gas exploration well near Israel hasn't thrilled the market especially given that ATPG is already leveraged fairly heavily and their income prospects are looking quite bleak relative to what they would need to ramp it up. Their forward strategic focus in on low risk projects that allow them to develop properties (note: they currently have a 98% success rate at converting undeveloped properties into production). They may be biting over more than they can chew however. We think the rewards outweight the risk and think speculative investors should consider building a position on selloffs.
Chesapeake Energy Corp (CHK]] - CHK is a company with a market capitalization of $13.69B. At time of writing this, they were trading at about $21.41, at the lower end of their 52-week range. Their price per earnings is $10.77, beta is fairly stable at 1.07 relative to the overall market, and their earnings per share is $1.99. Their yield is 0.35 or 1.60%. As recently as Jan 13, 2011, analyst Phil Weiss of Argus Research repeated his sell rating on CHK, cutting his 2011 rating to $2.81/share from $2.88/share, acknowledging that natural gas prices were eating away at CHK's profits. CHK was also cited in the most recent Bollinger Report dated 1/16/12 as a Sell. We'd rather not buck the analysts on this one.
GMX Resources, Inc (GMXR) - GMXR is an energy and gas company with oil shale operations in ND and MO and natural gas operations in TX with a market capitalization of $68.55M and a yield of 2.31. On December 9th, 2011, GMXR declared a cash dividend of $.578125 per share for holders of record on their 9.25% Series B Cumulative Preferred Stock for period ending Dec 30, 2011. This company, while a dividend payer, is highly leveraged with an operating income of only $1.9 million as of the end of 3Q of 2011 with their oil operation not seeing much of a profit at all. They continue to borrow a lot of money to fund operations which has bothered the market enough to spur Moody's to downgrade their unsecured notes to Ca. Couple that with a 19% price drop in gas prices in 2011 over 2010, and income prospects aren't as promising especially since natural gas supplies are exceeding normal levels because of warmer than usual weather at the beginning of the cold season. The share price for GMXR was trading around the time of writing this at $1.18, on the low end of their 52-week range. Their earnings per share is -6.29 and their last close saw a .084% drop. Their beta of 2.03 confirmed their instability in the overall market. Going forward, GMXR seeks to continue funding its operations in 2012 from its liquid asset and well results, relying on new oil hedges to keep cash flow going. Its 4Q 2012 goals are to increase production by 40%-50% and revenue by 60%-70%, but we're not sure how realistic that is.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.