The recent downturn in energy stocks has been remarkable in that certain stocks are not down much while others are down to their 52 week lows, and in some cases are near their 5 year lows. Some companies' stocks are down because of real or perceived liquidity issues, like Chesapeake Energy (CHK), Quicksilver Resources (KWK), Forest Oil (FST) and GMX Resources (GMXR). This makes sense - in 2008, stocks of over-levered companies traded down the most, and that was only a few years ago, so it is still fresh in investors' minds. Others, like Exxon Mobile (XOM), InterOil (IOC) and Crimson Exploration (CXPO) are near their 52 week highs, after strong earnings or well results.
Particularly interesting to me are companies whose stocks are down considerably and that don't have liquidity concerns - particularly cash-rich companies. Two cash rich companies I will focus on in particular are Sonde Resources (SOQ) and Molopo Energy (MLOOF.PK). Cash-rich tech companies made investors like Lloyd Miller and B. Riley a fortune in 2003, and cash-rich energy companies seem to have the potential to do the same in 2012 and beyond.
Sonde has a ~$100 million market cap, no debt, ~$50 million in cash, and generates ~$10 million in operating cash flow. Molopo has a ~$110 million market cap, no debt, ~$80 million in cash, and also generates ~$10 million in operating cash flow. Both companies are in the midst of a sale process of international assets, Molopo in Australia and Sonde in North Africa, which should each generate $50 million and could yield considerably more, particularly for Sonde.
Both stocks are at 52 week and 5 year lows, meaning that they are trading below where they traded in the 2008-2009 crash, which is particularly remarkable considering that, in 2009. Molopo was nearly insolvent and Sonde actually went through a restructuring process. It is also remarkable considering both companies have proven to be capable at divesting assets at or higher than their estimated private market value. Sonde sold its Trinidad asset last year and one of its Duvernay assets this year for considerable sums, and Molopo sold its Spearfish asset last year for almost its entire enterprise value at the time.
Also, beyond upcoming asset sales, Molopo has promising upcoming well results in the Wolfcamp shale play, near Approach Resources (AREX) and EOG (EOG). In particular, this month it is spudding its Barnhart well in close proximity to wells drilled by EOG that had 30 day IP rates of up to 1,000 boepd.
And Sonde will drill an oily Montney well at Ante Creek later this year, on trend with RMP Energy's (OEXFF.PK) highly successful oily Montney wells, which have similar production characteristics to Trilogy's (TETZF.PK) oily Montney wells. And Sonde is progressing with a "stealth" oil play, in an undisclosed area, where there is substantial well control. From the description on the conference call, it sounds like a Canadian version of Sandridge's (SD) Mississippian play - horizontal potential, large fluid volumes with a low oil cut, and lots of vertical well control.
Also, much ink has been spilled about natural gas prices bottoming and natural gas potentially being a great investment here. I won't delve into that here, but both Sonde and Molopo have meaningful natural gas price upside exposure - Sonde produces a lot of gas that is generating almost no cash flow at current prices, and Molopo has 1.4 million acres prospective for shale gas in Quebec. In the event of a natural gas price recovery, both would benefit considerably.
And finally, one way management of Sonde and Molopo could improve their shareholders' returns would be to institute aggressive stock buybacks and to distribute excess cash to shareholders.