Strike While the Pump Jack Is Cold: Oil and Gas Plays an Opportunity While Down?
With oil prices taking a beating, most investors interested in oil and gas are probably running for the hills or are taking a wait-and-see approach. (If you’re in the latter group, consider keeping an eye on the nine top oil and gas penny stocks for 2015 that we list here a little further down. Despite the economic environment, we believe these stocks could do well over the coming quarters.)
And really, who can blame them? Since the beginning of July, oil prices are down more than 50%, U.S. oil inventories are at their highest levels in at least 80 years, the number of oil rigs in the U.S. has dropped 35% since early December (to the fewest since 2011), and the global economy remains weak. (Source: Bloomberg News, February 25, 2015.)
Not the best metrics for oil and gas companies, let alone oil and gas penny stock companies. But one of the best times to consider a sector is when it’s beaten down not because of internal problems, but because of external factors.
The fact of the matter is that oil and gas are two resources that are not going away right now. As long as we rely on a non-renewable resource like oil, we’re going to need to find more of it. Eventually, the global economy will rebound, storage tanks will start to run dry, demand will increase, and prices will be back on the rise.
In the meantime, there are a lot of great oil and gas plays that have dipped into penny stock territory. For the sake of this article, that means any oil and gas penny stock trading under $10.00. There are also a lot of excellent companies that operate in the oil and gas sector, and now is a great time for well-heeled, larger oil and gas plays to acquire smaller companies.
Even still, in this economic environment, oil and gas penny stocks are not for the faint of heart.
Top 9 Oil and Gas Penny Stocks for 2015
Oil and Gas Penny Stocks No. 1: Callon Petroleum Company (NYSE/CPE)
Callon is an independent oil and natural gas company with multi-play, multi-pay assets in the Permian Basin (Texas). According to the most recent data, Callon’s proved reserves come in at 33 million barrels of oil equivalent, an increase of roughly 120% over the prior year-end. The company said 55% of that is currently classified as proved developed producing. (Source: Callon Petroleum, February 5, 2015.)
On February 5, 2015, the company said it forecasts 2015 production in the range of 8,000 to 8,400 barrels of oil equivalent per day, representing an annual increase of approximately 45% over calendar year 2014 guidance.
Oil and Gas Penny Stocks No. 2: Genie Energy Ltd. (NYSE/GNE)
Genie Energy is a leading independent retail energy provider and a developer of unconventional energy projects. The company comprises IDT Energy and Genie Oil and Gas. IDT Energy supplies electricity and natural gas to residential and small businesses in the Northeastern United States. Through various subsidiaries, Genie Oil and Gas explores for oil in unconventional shale plays in Colorado, Israel, and Mongolia. Genie Energy provides an annual dividend of 3.23% ($0.24).
In late December, Genie Energy announced that the Supreme Court of Israel lifted a stay on exploratory drilling in Northern Israel. As a result, the company expects to spud the first exploratory well during the first quarter of 2015. (Source: Genie Energy, December 23, 2014.)
Related Article: What are Penny Stocks and How to Trade Penny Stocks
Oil and Gas Penny Stocks No. 3: Rex Energy Corporation (NASDAQ/REXX)
Rex is an independent oil and gas exploration and production company with operations in two main areas: the Appalachian basin (natural gas and natural liquid gas) and the Illinois basin (conventional oil), both in the United States.
As of December 31, 2014, Rex had experienced 18 quarters of sequential growth in production and a compounded annual growth rate of proved reserves of 61%. In 2014, production increased 66% year-over-year, to 154.4 million of cubic feet equivalent per day (MMcfe/d). Oil and natural gas liquids increased 16% over the third quarter of 2014, a record level for the company. Meanwhile, proved reserves increased 57% year-over-year to 1.3 trillion cubic feet equivalent (Tcfe). (Source: Rex Energy Corporation, February 18, 2015.)
At the midpoint of its 2015 full-year guidance, the company expects to achieve 30% year-over-year production growth. (Source: Rex Energy Corporation, last accessed February 27, 2015.)
Related Article: Top Penny Stocks to Watch in 2015
Oil and Gas Penny Stocks No. 4: Willbros Group, Inc. (NYSE/WG)
Willbros is an energy infrastructure contractor targeting oil, gas, refinery, petrochemical, and power industries worldwide. The company has completed major pipeline systems, oil and gas production plants, piers, and bridges. Engineering services include design, feasibility studies, and project management. The company has offered its services to more than 400 clients in 60 countries on six continents.
On December 15, 2014, the company reported third-quarter income of $0.9 million, or $0.02 per diluted share, versus a loss of $12.0 million, or $0.25 per diluted share, in the third quarter of 2013. Third-quarter revenue increased 16.8% year-over-year to $559.7 million. At the end of the third quarter, the company had a total backlog of approximately $1.5 billion and a 12-month backlog of approximately $0.8 billion. The company ended the quarter with $48.9 million in cash and cash equivalents. (Source: Willbros Group, Inc., December 15, 2014.)
Oil and Gas Penny Stocks No. 5: CAMAC Energy (NYSE/CAK)
CAMAC Energy is an independent oil and gas exploration and production company focused on energy resources in sub-Saharan Africa. Its asset portfolio consists of nine licenses across four countries covering an area of 43,000 square kilometers (10 million acres).
With headquarters in Houston, the company has production and other offshore exploration projects in Nigeria; offshore exploration licenses in Ghana, Kenya, and Gambia; and an onshore exploration license in Kenya.
In 2014, CAMAC Energy announced an additional drilling rig for offshore Nigeria, received a $270-million private equity investment, closed a substantial acquisition, signed a drilling rig contract for up to two years in West Africa, signed a contract to extend the FPSO (floating, production, storage, and offloading vessel) for up to seven years in offshore Nigeria, and signed a petroleum agreement with the government of Ghana. (Source: CAMAC Energy, last accessed February 27, 2015.)
Oil and Gas Penny Stocks No. 6: Northern Oil & Gas, Inc. (NYSE/NOG)
An independent energy company, Northern Oil & Gas is the leading non-operator franchise in the Bakken and Three Forks plays in the Williston Basin of North Dakota and Montana.
According to the United States Geological Survey, the Bakken Formation and Three Forks Formation in North Dakota, South Dakota, and Montana have a mean average of 7.4 billion barrels of undiscovered, technically recoverable oil. (Source: Northern Oil & Gas, Inc., last accessed February 27, 2015.)
The company’s proved reserves increased 20% in 2014 to 100.7 million barrels of oil equivalent. During the period, the company added 589 gross (41.6 net) producing wells, bringing total producing wells to 2,338 gross (185.7 net). (Source: Northern Oil & Gas, Inc., February 26, 2015.)
Oil and Gas Penny Stocks No. 7. Penn Virginia Corporation (NYSE/PVA)
Penn Virginia is an oil and gas exploration and production company operating primarily in South Texas. It also has assets in the Mid-Continent, Mississippi and, to a lesser extent, Appalachia.
As of December 31, 2014, the company had proved oil and gas reserves of approximately 115 million barrels of oil equivalent, 738 gross productive wells, and approximately 224,000 gross acres of leasehold and royalty interests.
In 2015, the company is going to cut its capital expenditures to $295–$345 million, a decrease of 57%–63% from 2014. Roughly 60%–65% of the expenditures will be incurred during the first half of the year. Production is expected to increase 10%–20% over 2014 to approximately 8.7–9.6 million barrels of oil equivalent, or 23,800–26,200 barrels of oil equivalent per day. (Source: Penn Virginia Corporation, February 18, 2015.)
Oil and Gas Penny Stocks No. 8: Precision Drilling Corporation (NYSE/PDS)
Precision drilling is Canada’s largest drilling contractor and one of the largest in the United States. The company provides contract drilling, well servicing, and strategic support services to customers. On top of that, Precision Drilling supplies on-the-ground expertise (people, equipment, and knowledge). The company also provides an annual dividend of 3.62% ($0.22).
Thanks to its strong customer base, diverse geographic footprint, scale of operations, and liquidity, Precision Drilling remains poised for growth, even in these down-cycle periods. In fact, despite the tough economic climate, Precision Drilling has an average of 105 term contracts for full-year 2015. (Source: Precision Drilling Corporation, last accessed February 27, 2015.)
In 2014, the company grew as customers in the Middle East took delivery of three new build rigs. Precision Drilling plans to deliver another new build rig to the region in the first half of 2015, and upon delivery, will have 14 rigs working in international operations, an increase from just two rigs three years ago. At the end of 2014, the company had a fleet of 217 Tier 1 Super Series rigs and 17 additional rigs scheduled for delivery in 2015.
Oil and Gas Penny Stocks No. 9: Star Gas Partners, L.P. (NYSE/SGU)
Star Gas is the country’s largest retail distributor of home heating oil with annual revenues of approximately $2.0 billion and operations in 16 states in the Northeast and Mid-Atlantic, as well as the District of Columbia.
Investment firm Kestrel Energy Partners controls the general partner of Star Gas Partners. As a master limited partnership (MLP), Star Gas is required to distribute most, if not all, of its available cash to its unit holders. This results in higher yields for investors. To qualify as an MLP, a partnership must receive at least 90% of its income from qualifying sources.
Since 2009, Star Gas Partners has increased its dividend 29.6%, from $0.27 to $0.35 (4.69%). The company paid out $0.09 per unit in the first quarter and, over the last two years, has increased its quarterly payout in April. (Source: Star Gas Partners, L.P., last accessed February 27, 2015.)