Identifying Large-Cap Bakken/Eagle Ford Growth Opportunities

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 |  Includes: CLR, EOG, MRO, OXY
by: HiddenValueInvestor

There are many small/ mid/large-cap E&P companies, with acreage positions in the Bakken Oil Shale or the Eagle Ford Oil Shale, and sorting out the companies providing 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/large-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, 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 (NYSE:KOG). In a previous article on small-cap opportunities, Triangle Petroleum (NYSEMKT:TPLM) and U.S. Energy (NASDAQ:USEG) scored the highest, with capital investment to enterprise value ratios of 54% and 53%, respectively. Oasis Petroleum (NYSE:OAS) scored the highest amongst mid-cap companies, with a 30% capital expenditure to enterprise value ratio. This ratio incorporates several factors, including cash flow and liquidity available to each respective company.

Continental Resources (NYSE:CLR) has a current enterprise value of $16.91 billion. The company plans to spend $1.75 billion on its capital expenditure budget in 2012. This gives Continental a 2012 capital expenditure to enterprise value growth ratio of 10%.

EOG Resources (NYSE:EOG) has an enterprise value of $34.59 billion. The company plans to spend $7.5 billion on its capital expenditure budget in 2012. This gives EOG a 2012 capital expenditure to enterprise value growth ratio of 22%.

Marathon Oil (NYSE:MRO) has an enterprise value of $23.95 billion. The company plans to spend $4.8 billion on its capital expenditure budget in 2012. This gives Marathon a 2012 capital expenditure to enterprise value growth ratio of 20%.

Occidental Petroleum (NYSE:OXY) has an enterprise value of $86.11 billion. The company plans to spend $8.3 billion on its capital expenditure budget in 2012. This gives Occidental a 2012 capital expenditure to enterprise value growth ratio of 10%.

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, EOG Resources and Marathon Oil offer 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.