Oil prices have been climbing for several months now. Both oil and equities in general are part of the so called "risk on" trade. In addition to what appears to be an improving U.S. economy, a projected soft landing in China and (hopefully) an improving political and sovereign debt situation in Europe oil is benefiting from Iran's belligerent intransience and Israel's saber rattling.
With the S&P 500 setting a multi-year high last week and with Brent crude oil prices having remained above $100 for the better part of a year (dwarfing the previous record of 113 straight days set back in 2008), we think it is an opportune time for investors to increase exposure to the exploration and production (E&P) sector. Our focus is on companies heavily weighted to oil because of the domestic surplus of natural gas. To that end, we examine five of our favorite exploration and production companies, each with a great growth profile.
Gulfport Energy Corp. (GPOR)
Gulfport is an Oklahoma City, Oklahoma based E&P company with a market cap of $1.86 billion that trades an average of 750,000 shares per day. Production in 2011 was approximately 94% crude and natural gas liquids and reserves are 86% crude and natural gas liquids. Despite Gulfport's relatively small size, it offers geographic diversification and exposure to four of the best North American oil plays i.e., Permian, Utica Shale, Alberta Oil sands and the Niobrara. The 2012 capital budget is $215 - 225 million and with annual oil equivalent production estimated to be 3,000,000 - 3,200,000 barrels in 2012, the year over year growth is projected at 29 - 37%. We predict Gulfport will move up on the investment radar gauge as results start to flow from Utica Shale wells in the oil/wet gas window later this year.
Gran Tierra Energy, Inc. (GTE)
Gran Tierra is an E&P company headquartered in Calgary, Canada but with operations in Columbia, Argentina, Peru and Brazil. Gran Tierra has a $1.61 billion market cap and trades an average of 825,000 shares per day. The company provides outsized E&P exposure to South America, where Gran Tierra holds 12.1 million gross acres (7 million net). The company's reserves are 91% oil and liquids. Production exited 2011 at the rate of 18,600 BOE per day, and the 2012 production guidance is 20,000 to 21,000 BOE per day. Gran Tierra will spud 10 exploration wells in six different basins across Columbia, Argentina, Peru and Brazil this year. Among Gran Tierra's other attractions are its $226 million cash/cash equivalents and the fact that it has no debt on its balance sheet.
Kodiak Oil&Gas Corp. (KOG)
Kodiak is a Denver, Colorado based E&P company with a market cap of $2.25 billion that trades an average of 10.2 million shares per day. Reserves are 87% oil. Current production as of January 30, 2012 was 15,000 BOE. The 2012 capex is estimated at a healthy $585 million. Kodiak is essentially a Bakken / Williston Basin pure play with 155,000 net acres in the heart of the play (McKenzie, Williams and Dunn counties). Kodiak has an inventory of over 800 net prospective drilling locations for Bakken and Three Forks production, and is currently running six operated rigs with a 7th scheduled to be added in the second quarter. Kodiak is estimated to have earned $0.21 in the year just ended, and is projected to earn $0.99 this year. Actual results will be released Tuesday, February 28th after the close of trading with a conference call following on Wednesday morning.
Rosetta Resources, Inc. (ROSE)
Rosetta is an independent E&P company based in Houston, Texas with a market cap of $2.75 billion that trades 700,000 shares per day. We like Rosetta's management as they have built and sold domestic E&P companies before (Burlington Resources). We view Rosetta as basically an Eagle Ford Shale play with a potential Southern Alberta Basin kicker. Capital expenditures for 2012 are estimated at $640 million, with 93% allocated to Eagle Ford and 5% to the Southern Alberta Basin. Rosetta has 50,000 quality net acres in the Eagle Ford and 300,000 net acres in the Southern Alberta Basin. Proved reserves have doubled since year end 2010 thanks to their dramatic success in the Eagle Ford. While the initial results in the Southern Alberta Basin have been disappointing for those hoping for a Bakken like success, it is very early and we think the play still has great upside. We look forward to the completion of the final five wells in their initial seven well horizontal drilling program.
Oasis Petroleum, Inc. (OAS)
Oasis is an independent E&P company based in Houston, Texas with a market cap of $3.2 billion that trades an average of 1.7 million shares per day. Oasis is another Bakken / Williston Basin pure play. Oasis is estimated to earn $1.61 per share this year and is projected to earn $2.71 per share in the year ending in December 2013. The company is 88% oil weighted and has over 307,000 net acres in the Bakken / Three Forks trend. Last year production grew by 106%. Oasis has 1,043 total net potential drilling locations in the Bakken / Three Forks, which at the current drilling pace equates to approximately an eleven year inventory.