A fellow energy hound asked me today if I'm seeing any screaming stock bargains in the oil and gas sector. My answer went something like this: "Pfffshhh!" That's shorthand for "No, sir, I most certainly am not."
I tend to like my stocks fairly beaten down, like ATP Oil & Gas
About the best I can offer right now is a group of top-shelf E&Ps that have lost some ground over the past six months, while the broader market's raced higher. Specifically, I'm thinking of heavily natural gas-weighted onshore players Ultra Petroleum
First off, Range is one of the lower-cost producers in the industry, with direct lifting costs dropping 22% to just $0.73 per thousand cubic feet equivalent (mcfe) of gas in the first quarter. The firm has a massive, repeatable drilling inventory in the Marcellus shale and elsewhere in the U.S., providing the ammo for double-digit production growth as far as the eye can see. Finally, the company has a strong enough balance sheet to see this program through, provided that prices are reasonably cooperative.
That last bit may be the only real sticking point. Range and its low-cost peers can get by at $4 to $5 gas, but it's not the kind of environment in which these companies can truly thrive. Natural gas prices are the biggest thing weighing on these shares, in my opinion. If you consider today's prices unsustainably low, as Encana