Whenever the entire energy sector takes a massive drop, there are a fair share of companies that take big hits to their share price, even if it might not necessarily be warranted. Today, that is especially true in the energy market. While the decline in oil and gas prices has sent the entire sector plunging, there is a handful of companies that have seen their share values get beaten down to levels that seem almost preposterous.
We have a few energy contributors huddled in the corner who have been starting to seriously question their own sanity lately because they see a ton of companies in the space that have seen their shares get beaten down to bargain-basement levels. So we asked them to highlight one company that has them wondering whether they are the crazy ones or these stocks are absolute steals right now. Here's what they had to say.
Considering the spate of bad news over the past few weeks, I would understand why you'd think I'm nuts for increasing my holding in independent producer Ultra Petroleum(NASDAQ:UPL), but that's exactly what I did just last week.
Over the past couple of months I have been really wondering if I am missing something when looking at Denbury Resources (NYSE:DNR). I can certainly recognize the sentiment that earnings will take a steep drop if oil prices remain low for the next 12 to 18 months and all of Denbury's hedging protection expires. However, when compared to several other companies in the exploration and production space, it has a much more solid footing.
Denbury is unique in the sense that almost all of its oil is produced using enhanced oil recovery by injecting CO2 into older wells that were thought to have produced their last barrels. There are two very distinct advantages to this. First, finding and development costs are much lower than traditional extraction since the oil is already found. Second, once the well has been repressurized with CO2, the decline rates are much lower and slower than what we see with shale wells, which means capital spending to maintain production levels can be much lower. In fact, this past quarter the company was able to fully fund its capital spending, its dividend, and still have enough operational cash left over to pay down $115 million in debt.
With operations that can live within their means and a manageable net debt-to-EBITDA ratio of 2.1 times, it looks as though Denbury will be able to manage the storm of oil prices rather well over the next 18 months without having to make any more drastic changes to its operations. So unless I'm missing something, this company's stock trading at less than half of its tangible book value looks like you could get an awful lot of bang for your buck.
I thought about playing the hero and jumping on board with a severely beaten-down oil and gas producer. But I just can't shake the feeling that midstream MLP Enterprise Products Partners (NYSE:EPD) is a screaming bargain right now. I don't see a good reason that its units are down more than 20% so far this year. It's a move that has pushed its distribution yield up well over 5%, which is just too compelling to pass up.