Rising Star Buy: Double Eagle Petroleumhttp://www.fool.com/investing/general/2011/10/04/rising-star-buy-double-eagle-petroleum.aspx Paul Chi
October 4, 2011
The recent swoon in the commodity markets has not been kind to the energy sector. When the price of oil goes down, the prices of companies linked to oil often go down even more. The bright spot is that such weakness also tends to bring about attractive entry points for people who are looking for buying opportunities. One such company worth buying is Double Eagle Petroleum (Nasdaq: DBLE ) .
In the past several years, Double Eagle has undergone a transformation. It all started in 2007, when the company's Atlantic Rim Environmental Impact Statement was approved, which awarded the company the right to drill 1,800 CBM wells and 200 conventional wells in the area. Double Eagle wasted no time and ramped up capital spending, which allowed the company to more than double its proven reserves in a short span, going from about 51 Bcfe at the end of 2006 to 115 Bcfe at the end of 2010. After just a few years, the Atlantic Rim became Double Eagle's biggest source of proven reserves.
Capital expenditures were consuming cash quite rapidly leading up to the major company transformation, but that situation has quickly reversed itself. Double Eagle now finds itself in the enviable position of producing enough cash from operations to fund capital expenditures without relying on debt or equity financing. That's a privilege most small producers simply don't enjoy.
Source: Capital IQ, a division of Standard & Poor's. All dollar amounts in millions.
Also, as of the latest close, Double Eagle traded well below its PV-10 of proven reserves of $143.7 million and clocked in at less than 3 times trailing operating cash flow. However, the most exciting part of this story might actually be its Niobrara shale acreage, which doesn't even figure into its proven reserves or its operating cash flow. What makes Double Eagle so compelling is that it produces natural gas at a steady clip from its core assets, trades at a low valuation, and has attractive exploration assets that we get as a bonus.
Most small-cap independent oil and gas companies usually don't offer both strong cash flows and exciting exploratory potential -- it's usually one or the other.
Oil exploration in the Niobrara