There are many small / mid-cap E&P companies with acreage positions in the Bakken Oil Shale or Eagle Ford Oil Shale. Sorting out which companies provide the best growth opportunities can be difficult. One way to measure potential 2012 growth is to compare the announced 2012 capital expenditure budgets for various small / mid-cap stocks versus their enterprise value, which is total market cap plus long term debt. This provides a bang for the buck ratio, which will be a strong predictor of future production and revenue growth of each respective company. The higher the percentage of planned capital expenditures to total capital structure, then the greater the growth potential to current valuation.
Stocks that were richly rewarded based on this ratio in 2011 included Brigham Exploration (BEXP) and Kodiak Oil and Gas (KOG). In a previous article Triangle Petroleum (TPLM) and U.S. Energy (USEG) scored the highest with capital investment to capital structure ratios, of 54% and 53% respectively. This ratio incorporates several factors including cash flow and liquidity available to each respective company.
Magnum Hunter Resources (MHR) has a current enterprise value of $1.06 billion. The company plans to spend $ 200 million on its capital expenditure budget in 2012. This gives Magnum Hunter a 2012 capital expenditure to enterprise value growth ratio of 19%.
Northern Oil & Gas (NOG) has an enterprise value of $1.50 billion. The company plans to spend $325 million on its capital expenditure budget in 2012. This gives Northern Oil & Gas a 2012 capital expenditure to enterprise value growth ratio of 22%.
Whiting Petroleum (WLL) has an enterprise value of $7.29 billion. The company plans to spend $1.6 billion on its capital expenditure budget in 2012. This gives Whiting a 2012 capital expenditure to enterprise value growth ratio of 22%.
Oasis Petroleum (OAS) has an enterprise value of $2.96 billion. The company plans to spend $884 million on its capital expenditure budget in 2012. This gives Oasis a 2012 capital expenditure to enterprise value growth ratio of 30%.
SM Energy (SM), formerly known as St. Mary's Land, has an enterprise value of $5.54 billion. The company plans to spend $1.45 billion on its capital expenditure budget in 2012. This gives SM Energy a 2012 capital expenditure to enterprise value growth ratio of 26%.
There are many considerations besides just 2012 growth potential when considering investing in a stock. All of the above mentioned are subject to drastic changes in the price of oil or natural gas, which can impact changes in the 2012 capital expenditure budgets. Also, not all acreage is the same and all of these companies can change their budgets based on success or failure of the drill bit. Simply based on their current plans, Oasis Petroleum offers the best growth to enterprise value in 2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
