Five Of The Fastest Growing E&P Companies

by: Josh Young

The following five companies are among the fastest growing public oil and gas companies in the US. They are active in some of the "hottest", fastest growing shale oil plays in the US. They are primarily focused on growing oil production, mostly through unconventional development. And due to their rapid growth, they are likely to be featured more prominently going forward.

1) Gulfport Energy (NASDAQ:GPOR)

One of the fastest growing oil and gas companies, small or large, is Gulfport. Gulfport is focused on the development of the Utica / Point Pleasant shale play in eastern Ohio. It has already grown rapidly and is projected by analysts to grow its EBITDA a phenomenal 153% (from 2013 to 2014)! Utica wells in the sweet spot, which Gulfport has exposure to, may generate 100%+ IRRs, which will help Gulfport finance its continued growth in 2014 and beyond.

One challenge I have had investing in Gulfport is the large premium Gulfport trades at to its proved reserve value. Gulfport trades at over 10x its most recently reported after-tax PV-10. This is likely because of the rapid growth it is experiencing, and reserves may be likely to increase rapidly along with production growth. But as a value investor, this does make investing in Gulfport a challenge. Another challenge is the high EV/EBITDA multiple Gulfport trades at. At ~8x EV/EBTIDA for consensus 2014 estimates, Gulfport trades above its comparable peers. But this is less difficult to reconcile than the reserve multiple, as the production growth could justify this higher than average multiple.

2) Diamondback Energy (NASDAQ:FANG)

The next rapidly growing E&P, Diamondback Energy. is actually a spin-off from Gulfport. Diamondback is focused on developing the Midland Basin Wolfcamp play in West Texas and other plays above and below the Wolfcamp. Like Gulfport, Diamondback has already begun its rapid growth and is projected by analysts to grow EBITDA in 2014 by ~125%! And with Midland Wolfcamp wells also projected to earn high double to low triple digit IRRs, Diamondback should be able to find financing to continue growing into the future despite high initial decline rates from shale wells.

I have a similar challenge to investing in Diamondback as with Gulfport. Trading at a slightly lower ~5x multiple to most recently reported after tax reserves, it is certainly a "growth" and not a "value" investment. And at 7.4x 2014 EBITDA (analyst consensus projected), it is not cheap compared to other growing oil and gas stocks.

3) Triangle Petroleum (NYSEMKT:TPLM)

The next rapidly growing oil and gas company is Triangle Petroleum . I actually facilitated Triangle's first investment in the Bakken, introducing them to a private operator and earning a finders fee (full disclosure). This was in 2010, and I now have no relationship with the company (they even have a new CEO).

Triangle is projected to grow its EBITDA by ~85% in 2014, substantially more than most of its peers. And Triangle drills most of its wells in a core are of the Bakken Oil play (incidentally, focusing on the area I helped them buy), generating high double digit IRRs. Triangle has used money from NGP (NGPC) to fund its development, and should be able to line up substantially more lower cost bank debt as its production and reserves grow rapidly.

Triangle trades at ~4x its most recently reported after tax proved reserve value, which is a substantial premium, albeit lower than the multiple Diamondback and Gulfport trade at. However, it trades at a much more reasonable ~4.3x EV/2014 EBITDA, based on analyst consensus projections. I don't currently own Triangle stock, but if its reserve value were to rise substantially, I could evaluate it more closely.

4) Magnum Hunter (MHR)

Magnum Hunter is unlike the above three stocks mentioned because it focuses on two different basins and on three shale plays - the Bakken in North Dakota and, the Utica and the Marcellus in West Virginia and Ohio. Magnum Hunter is projected by analysts to grow its EBITDA by 70% in 2014.

Magnum Hunter MHR trades at ~4x after tax reserve value, based on its most recent reserve value disclosure. And it trades at just over 10x its analyst consensus projected EV/2014 EBITDA, which is higher than any of the other companies mentioned. This is mostly driven by high levels of debt, which might need to be paid down through asset sales for MHR to materially appreciate, despite the company's rapid production growth. Magnum Hunter does have a pipeline asset, Eureka Hunter, that it might sell some or all of in order to de-lever, and it has indicated it might do so in 2014, so perhaps these metrics will look better after such a sale.

5) Austex Oil (OTCPK:ATXDY)

Austex Oil is unlike the above four stocks mentioned because it primarily trades on the Australian stock exchange using the ticker AOK AU. It also trades in the US on the OTCQX exchange using the ticker ATXDY. Austex is actually the fastest growing company of these five, projecting growth of ~300% in 2014 after achieving unbelievable 500% growth from the start of 2012 to the end of 2013.

Interestingly, despite being the fastest growing, it also trades at the lowest multiple of its proved reserve value, likely because of its foreign listing, despite having entirely US assets, in the Mississippi Lime play in Kay County, Oklahoma. Austex trades for 1/3 of the value of its most recently reported proved reserves. Yes, that is 1/3 not, 3x (or 10x+ like Gulfport...). Austex also trades at ~3x its 2014 EBITDA (based on company projections), which is a lower multiple even than Triangle, and less than half the multiple GPOR, FANG and MHR trade at. Not surprisingly, I own shares of Austex Oil. Here is a link to an article that discusses Austex in more detail (link).

Disclaimer: Opinions expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment adviser capacity. This is not an investment research report. The author's opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies' SEC filings, and consult a qualified investment adviser. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author's best judgment as of the date of publication, and are subject to change without notice.

Disclosure: I am long ATXDY, . I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.