Big oil and gas companies can cast a large shadow, hiding potential winners from our sights. Even an independent like Chesapeake Energy is a headline hog, so sometimes it pays to dig a bit deeper in the search for potential portfolio adds in the natural gas sector. Below are three such companies, all with market caps less than $2.5 billion.
The company has lost 40% of its value and grossly underperformed the S&P since April. The future looks just as bleak; Quicksilver has $940 million in public debt that is callable between now and the end of next year. The company has decided to create a master limited partnership, which will raise funds in an IPO, borrow additional funds, and then buy up some of Quicksilver's Barnett Shale assets. Quicksilver will then turn around and use that money to pay off debt. I hope it goes well. Quicksilver is so cheap right now, it could be ripe for a potential buyout. It would certainly be less complicated.
First, the company doesn't have anywhere near the debt load that Quicksilver does. Second, the price of oil and natural gas liquids are both up, coinciding perfectly with the company's new operation in the oil and NGL-rich Mississippi Lime play. Oil and NGLs accounted for 18% of PetroQuest's third-quarter production. The company expects the same in the fourth quarter, but that number is bound to increase once the Mississippi Lime wells begin to come online. PetroQuest plans to begin drilling operations on its first well there at the end of this year.
EV Energy Partners
However, I urge caution celebrating this move as anything other than a long-term investment. Though the Barnett has a ton of gas, many companies are moving out of the play in search of more lucrative oil and natural gas liquids. A more favorable near-term position may be the company's stake in the Utica Shale, a play that is expected to be rich in oil and natural gas liquids. The Ohio Department of Natural Resources has indicated the Utica Shale may hold between 1.3 billion and 5.5 billion barrels of oil and 3.8 trillion to 15.7 trillion cubic feet of natural gas.
Not every energy company is going to be a winner, but as PetroQuest Energy shows us, a bad quarter doesn't preclude hope for the future. I like the small cap's potential enough to make a CAPSCall on it right now.