3 Profitable Oil And Gas Stocks With Minimal Debt

Includes: EPM, GTE, MCF
by: ZetaKap

As many people can attest, oil and gas expenses account for an ever increasing amount of personal spending. For investors who prefer to put their money in products and services that they use on a regular basis, it makes sense to consider oil and gas stocks. To find companies in this sector that look well positioned for growth, we focused on the attributes of profitability and minimal debt. Our short list of oil and gas stocks include those generating strong profits through operational efficiency while maintaining focus on the bottom line. Further, these companies have not leveraged assets to fund growth. Review the findings for yourself to see if any of these stocks meets your criteria.

The Operating Profit Margin is a profitability ratio that measures the effectiveness of the company's operating efficiency. This metric allows investors to see how much profit is left after all variable costs are covered. If the company's margin is increasing over time, this means that it's earning more per dollar of sales. Finding trends in the Operating Profit Margin helps investors identify companies that are improving profitability over time and managing the economic landscape better than their competitors.

The Net Margin is a profitability metric that illustrates, by percentage, how much of every dollar earned gets turned into a bottom line profit. This is just one of many profitability metrics used by investors and analysts to better understand what the company is being left with at the end of the day. Generally, a firm that can expand its net profit margins over a period of time will see its stock price rise as well due to the trend of increasing profitability. Net Margin = Net Income/Total Revenue

The Long Term Debt/Equity Ratio is a variation of the traditional debt-to-equity ratio; this value computes the proportion of a company's long-term debt compared to its available capital. By using this ratio, investors can identify the amount of leverage utilized by a specific company and compare it to others to help analyze the company's risk exposure. Generally, companies that finance a greater portion of their capital via debt are considered riskier than those with lower leverage ratios.

The Debt/Equity Ratio illustrates how aggressively a company is financing its growth via debt. The more debt financing that is used in a capital structure, the more volatile earnings can become due to the additional interest expense. Should a company's potentially enhanced earnings fail to exceed the cost associated with debt financing over time, this can lead the company toward substantial trouble.

We first looked for oil and gas stocks. Next, we screened for businesses with strong profit margins (1-year operating margin>15%)(Net Margin [TTM]>10%). We next screened for businesses that operate with little to no long term debt (Long Term D/E Ratio<.1). From here, we then looked for companies that operate with little to no debt (D/E Ratio<.1). We did not screen out any market caps.

Do you think these stocks will trade at a higher valuation? Use our list to help with your own analysis.

1) Gran Tierra Energy, Inc. (NYSEMKT:GTE)

Sector Basic Materials
Industry Independent Oil & Gas
Market Cap $1.44B
Beta 1.25

GTE stock chart

Key Metrics

Operating Profit Margin 33.90%
Net Margin 16.17%
Long Term Debt/Equity Ratio 0.00
Debt/Equity Ratio 0.00
Short Interest 0.66%

Gran Tierra Energy Inc., an independent energy company, engages in the acquisition, exploration, development, and production of oil and gas properties in Colombia, Argentina, Peru, and Brazil. As of December 31, 2011, the company's acreage included 3.5 million gross acres covering 21 exploration and production contracts in Colombia; 1.4 million gross acres covering 12 exploration and production contracts in Argentina; 6.4 million gross acres covering 5 exploration licenses in Peru; and 0.8 million gross acres covering 6 exploration blocks in Brazil. It also had estimated proved reserves of 30.9 million barrels of oil and natural gas liquids, and 18.3 billion cubic feet of gas. The company was founded in 2005 and is headquartered in Calgary, Canada.

2) Evolution Petroleum Corp. (NYSEMKT:EPM)

Sector Basic Materials
Industry Independent Oil & Gas
Market Cap $243.70M
Beta 1.33

EPM stock chart

Key Metrics

Operating Profit Margin 49.16%
Net Margin 28.57%
Long Term Debt/Equity Ratio 0.00
Debt/Equity Ratio 0.00
Short Interest 4.61%

Evolution Petroleum Corporation, together with its subsidiaries, engages in the acquisition, exploitation, and development of properties for the production of crude oil and natural gas in the United States. The company's principal asset includes the Delhi Holt Bryant Unit, located in the Delhi Field in Northeast Louisiana. It also holds 5,362 net developed acres and approximately 4,179 net acres as undeveloped and associated with its proved drilling locations in the Giddings Field located in Central Texas; owns leases on approximately 764 net acres in the Lopez Field in South Texas; and holds Woodford Shale Projects in Southeast Oklahoma. As of June 30, 2011, it had proved reserves of 13,848 thousand barrels of oil equivalent. The company is headquartered in Houston, Texas.

3) Contango Oil and Gas Co. (NYSEMKT:MCF)

Sector Basic Materials
Industry Independent Oil & Gas
Market Cap $825.20M
Beta 0.76

MCF stock chart

Key Metrics

Operating Profit Margin 52.59%
Net Margin 33.03%
Long Term Debt/Equity Ratio 0.00
Debt/Equity Ratio 0.00
Short Interest 6.81%

Contango Oil and Gas Company, an independent natural gas and oil company, acquires, explores, develops, and produces natural gas and oil properties primarily onshore and offshore in the Gulf of Mexico. The company was founded in 1986 and is based in Houston, Texas.

*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 09/18/2012.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: This article was prepared for ZetaKap Media by one of our full-time analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.