The Best Energy Stock, Period

A recent email exchange with an investor buddy of mine went something like this:

Jeff: What's the best energy company you know of between, say, $1 billion and $20 billion in market value? All sub-sectors count.

Toby: The best-run company? The best value?

Jeff: How about one of each?

Gee, thanks for the softball question there, Jeff. Very well. I'll give it a shot.

While the market capitalization caveat might seem broad, it actually constrains my choices a good deal. ExxonMobil (NYSE: XOM  ) , arguably the greatest company in the history of the world, is obviously too big to fit the bill. So are independents like XTO Energy, EOG Resources, and Anadarko Petroleum. Meanwhile, longtime favorites Contango Oil & Gas and ATP Oil & Gas (Nasdaq: ATPG  ) are too small for consideration.

Among E&Ps, Chesapeake Energy (NYSE: CHK  ) is a contender for best value. It's tough to beat the company's shale exposure and expertise. That said, Chesapeake's low market cap belies significant financial leverage that caused trouble during the credit crisis, and potentially led the company to miss out on a killer acquisition.

Chesapeake management has a taste for excess, exemplified by CEO Aubrey McClendon's ridiculous wine collection, several thousand bottles of which were to be auctioned last month.  For best-run -- in which conservatism, shareholder-friendliness, and good governance are all key factors -- I would opt for Range Resources, Southwestern Energy (NYSE: SWN  ) , or Ultra Petroleum.

Turning to the midstream players, I've been partial to Kinder Morgan Energy Partners (NYSE: KMP  ) since identifying it as a profit machine back in 2007. Having risen out of the ashes of Enron, the company has delivered 25% annual returns since inception (with distributions reinvested). Dollar-a-year man Richard Kinder and crew are serious capital allocators. The company also stacks up well in EnergyPoint Research's most recent customer satisfaction survey.

When it comes to oilfield services, you know I love my offshore drillers. Tops would be Noble (NYSE: NE  ) , with Ensco International running a close second. Aside from being exceptionally well-managed, these companies also look quite cheap -- if not five-bagger cheap like Chesapeake.

Another standout in the services realm is Core Laboratories (NYSE: CLB  ) . This rock jock was my pick for Best Stock for 2009. Through yesterday's close, the stock had delivered a year-to-date total return north of 80%. While Core Labs isn't obviously undervalued today, this may be the best energy company I know of, period. It's one that Jeff should get to know, and you should, too.

Chesapeake Energy is an Inside Value pick. See if any of our premium services spin your drill bit with a free 30-day trial of any of our newsletters.

Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his CAPS profile or follow his articles using Twitter or RSS. The Motley Fool owns shares of Chesapeake and XTO, and has a disclosure policy.


Read/Post Comments (20) | Recommend This Article (37)

Comments from our Foolish Readers

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  • Report this Comment On December 09, 2009, at 8:31 PM, NiksurfsInvestmt wrote:

    I think you have to add NOV to that list, value performance, balance sheet and mgmt. Mighty tasty at this level.

  • Report this Comment On December 10, 2009, at 12:45 AM, XMFSmashy wrote:

    Niksurfs,

    Definitely crossed my mind! I am a fan:

    http://www.fool.com/investing/general/2009/10/27/stacking-ca...

  • Report this Comment On December 10, 2009, at 11:10 AM, IdahoAve wrote:

    why have a title that doesn't having anything to do with the article? Best Period indicates a claim is going to be made, not a brief over few of a diversity of energy stocks.

  • Report this Comment On December 10, 2009, at 11:20 AM, pondee619 wrote:

    "The Best Energy Stock, Period"? Where was it mentioned?

    I'm sorry, but could you repeat your answer. I must have missed it. What is the "Best Energy Stock, Period"? I saw a bakers dozen of stocks mentioned with no reference to which was the "Best Energy Stock, Period". Which one is it? Is it any of those mentioned? Is there a "Best Energy Stock, Period"? Are all fool articles misleading?

    And now the true purpose of the "article": "See if any of our premium services spin your drill bit with a free 30-day trial of any of our newsletters". It just aint a fool article without a pitch to spend money.

  • Report this Comment On December 10, 2009, at 12:15 PM, XMFSmashy wrote:

    Did you guys read to the end? I thought I was pretty clear.

  • Report this Comment On December 10, 2009, at 12:21 PM, pondee619 wrote:

    "Did you guys read to the end? I thought I was pretty clear." YEP

    "See if any of our premium services spin your drill bit with a free 30-day trial of any of our newsletters".

    But we were promised "The Best Energy Stock, Period" So much for believing in the fool. They will tell you anything to get you to read one of the ads.

  • Report this Comment On December 10, 2009, at 12:21 PM, pondee619 wrote:

  • Report this Comment On December 10, 2009, at 12:41 PM, XMFSmashy wrote:

    I gave you my pick. Other nominations?

  • Report this Comment On December 10, 2009, at 12:41 PM, amundbr wrote:

    If you read the last paragraph, second to last sentence, it says,

    "While Core Labs isn't obviously undervalued today, this may be the best energy company I know of, period."

    So there you have it, "The Best Energy Stock, Period!"

  • Report this Comment On December 10, 2009, at 12:46 PM, crazy4swayze wrote:

    "Core Labs isn't obviously undervalued today, this may be the best energy company I know of, period."

    i'm not saying i agree or disagree, but it's pretty clearly stated.

  • Report this Comment On December 10, 2009, at 12:56 PM, catoismymotor wrote:

    Smashy,

    Thank you for the introduction to CLB. I look forward to studying the company. EROC has been on my radar for a while. To me it holds great promise due to CNG being so inexpensive. I know it it is a smaller company than the companies previously up for discussion but I do so love small caps.

    Cato

  • Report this Comment On December 10, 2009, at 1:11 PM, pondee619 wrote:

    "When it comes to oilfield services, you know I love my offshore drillers. TOPS would be NOBLE (NYSE: NE), with ENSCOI nternational running a close SECOND" Where is Core Labs?

    "ANOTHER standout in the services realm is Core Laboratories" It is not obviously under valued, it MAY be the best energy company, although it runs at least third in the services realm.

    Could we hedge our bets a little more. In the services realm, Core, (which may be the best energy stock, period) Isn;'t first (Noble is) and it isn't second ( ENSCO is). How is it the Best Period?

    Your definition of clear is pretty murky.

  • Report this Comment On December 10, 2009, at 1:11 PM, pondee619 wrote:

  • Report this Comment On December 10, 2009, at 1:24 PM, xjp83x wrote:

    Another good choice would be MDR

  • Report this Comment On December 10, 2009, at 1:34 PM, djkumquat wrote:

    pretty clear to me - i'll be looking into CLB, thank you!

  • Report this Comment On December 10, 2009, at 6:25 PM, XMFSmashy wrote:

    Cato and djkumquat,

    You're welcome. Let me know what your research turns up.

    xjp83x,

    Interesting suggestion with MDR. The company plans to spin off its nuclear biz, so the remaining co. (renamed J. Ray McDermott SA) will be quite levered to oil & gas.

  • Report this Comment On December 14, 2009, at 8:15 PM, Fool wrote:

    I am surprised Apache did not make the list. I think their Management alone would certainly give them an edge over Chesapeake.

  • Report this Comment On December 14, 2009, at 8:21 PM, NOTvuffett wrote:

    ummm, xto did pretty good today.

  • Report this Comment On December 15, 2009, at 4:14 PM, XMFSmashy wrote:

    Yes, Fool, I am a big fan of Apache! See:

    http://www.fool.com/investing/value/2009/07/31/apaches-beaut...

    and

    http://www.fool.com/investing/general/2009/10/30/apache-pump...

    While quite ambivalent toward CHK, I'm pretty enamored with most of the other independents, save for Devon:

    http://www.fool.com/investing/value/2009/11/06/devon-needs-a...

  • Report this Comment On December 15, 2009, at 5:31 PM, Fool wrote:

    Same here.

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