Though past performance is no guarantee of future success, one of the top performing energy stocks of 2011 has piqued my interest in the new year. Great performance paired with a smart growth strategy has prompted me to take a closer look at EV Energy Partners
EV Energy Partners was formed by a private Houston-based company, EnerVest, in 2006. A master limited partnership, EVEP focuses on onshore oil and gas production with its core assets in Fort Worth's Barnett Shale and Ohio's Utica Shale.
A top performer
EVEP had a great 2011, growing more than 66% over the course of 12 months, without accounting for dividends and splits.
The company outperformed the S&P 500 all year long and absolutely crushed it over the last six months of the year. Success is not simply limited to this past year; since its IPO in 2006, EVEP has a total return of 310%.
EVEP began 2012 with a new CEO, promoting President Mark Houser to the chief executive position. Former head John Walker stepped aside but remains executive chairman.
Houser is one of many new energy CEOs in 2012 and faces an industry that is not only growing rapidly, but seeing increasing backlash from the public over concerns that domestic energy production is wreaking havoc on the environment. EVEP will depend on him to steer it through increasingly choppy waters.
In 2012, EVEP expects organic growth to come from four regions: the Appalachian Basin, which includes the Utica Shale; the Mid-Continent Region, which includes the Granite Wash play; the Barnett Shale; and the Austin Chalk.
What's just as important is EVEP's risk strategy for this year. The company has 74% of production hedged for 2012, protecting cash flows and mitigating the effect of depressingly low natural gas prices.
Speaking of low gas prices…
Another reason to like EVEP is that it's smart when it comes to acquisitions. Take its recent Barnett Shale acquisition from EnCana. Seventy-nine percent of the acreage EVEP picked up is held by production, which means the land lease continues as long as a well is producing at an agreed-upon minimum rate, regardless of when the lease was originally set to expire.
How does this benefit natural gas companies? Say you have a five-year lease that starts today. Why not wait four years to get a well up and running? The price of gas is severely depressed right now, and there is no risk of losing your land, provided that the well does end up producing at an acceptable rate once it is completed.
After an excellent 2011, EV Energy Partners shows no sign of slowing down. As production ramps up in the Utica, expect big things out of this well-run MLP.
Looking for another stock idea for the new year? Check out what the Motley Fool's chief investment officer considers the top stock for 2012.