This Could Send Goodrich Petroleum Stock Even Higher

Despite some lumpy well results from the Tuscaloosa Marine Shale, Goodrich Petroleum appears on a path to growth with an attractive market valuation.

Jul 9, 2014 at 4:04PM

Is it possible that after a volatile move higher in shares of Goodrich Petroleum Corp (NYSE:GDP) since February that it could head even higher and potentially significantly so? The oil exploration and production company has recently announced drilling results in the Tuscaloosa Marine Shale, or TMS, that had gotten progressively better until the last well after some initially disappointing outcomes.

In reality, the recent decline from $30 only has the stock back to levels barely above the highs of 2013 while the production results suggest the company could sit on some very oily acres. Comparing the recent valuation to some other players in liquids-rich areas such as Gulfport Energy Corp (NASDAQ:GPOR) and Halcon Resources (NYSE:HK) makes the stock worth a longer look.

TMS turning into a premier oilfield
While Goodrich Petroleum isn't all about the TMS, it does have a large focus in the shale along with nearly half of the total resource potential for the company. The other major resource potential is in the Haynesville Shale, which is focused on natural gas. In fact, Goodrich was a successful driller in the Haynesville until natural gas prices plunged.

With over 310,000 net acres in the TMS, the company has seen the stock rise and fall and rise again on the back of that potential resource. Some initial bad results nearly crushed the stock, but the recent results are starting to support a potential home run in the region. A well turned on production back in April at initial production rates of 1,270 boe/d followed by a June well with 1,450 boe/d peak production rate. With both wells producing over 95% oil, the company is quickly able to cover the well costs, which hit $13 million each. Unfortunately, the most recent well result of 740 boe/d has the market confused on the real potential of the acreage.

In a similar manner, Halcon Resources has built up a 314,000 net acre position in the TMS with recent strong well results. The most recent well announced in early June could produce up to 1,548 boe/d. 

With capital expenditures doubled for the second quarter compared to the first quarter, Goodrich should begin seeing considerable production growth after a few years of declines in Haynesville production after dramatically reducing expenditures.

Huge resource potential
With an enterprise value of only $2 billion, Goodrich Energy remains a relatively small E&P play. The dilemma for investors is that the company has proved reserves focused mostly on a couple of plays around the Haynesville Shale that provide them 452 Bcfe of gas. The key, though, is that the resource potential soars to 8,577 Bcfe based on the TMS and the Shelby Trough portion of the Haynesville Shale, both areas account for around 7% of the current proved reserves. 

Screen Shot

Source: Goodrich Petroleum

The current enterprise value amounts to a value of roughly $1.46 per boe based on the huge resource potential.

Though an energy firm like Gulfport Energy has roughly double the production and revenue levels, it has smaller proved reserves and acreage positions. Gulfport only has approximately 179,000 net acres in the Utica/Point Pleasant Shale and the company reported year-end proved reserves of only 38.4 million boe.  

Bottom line
Goodrich Petroleum has a relatively small enterprise value for the resource potential owned. The company faces risks primarily in the development of the TMS that again popped up with a low well result, but enough wells have produced solid oil production in the region from both it and Halcon Resources to suggest the company is now on the path to major growth.

Do you know this energy tax "loophole"?
You already know record oil and natural gas production is changing the lives of millions of Americans. But what you probably haven't heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America's greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, "The IRS Is Daring You to Make This Investment Now!," and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Mark Holder has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers