3 Ways to Play the Shale Boom: Kinder Morgan Energy Partners LP (KMP), Southwestern Energy Company (SWN), Hi-Crush Partners LP (HCLP)

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Kinder Morgan Inc (NYSE:KMI)Natural gas shale has been discovered left and right in the United States, making us a worldwide leader in production. This has provided oil and gas companies with plenty of opportunities to get their hands on as much as possible. There are several ways to play this shale boom, with the exploration and production companies, suppliers of products used in the drilling, or the pipelines used to transport the gas. Let’s take a look at three of the players in this sector.

The Producer

Southwestern Energy Company (NYSE:SWN) is a North American company focussed on exploration, development, and production of natural gas and oil. They currently operate in 7 major areas and have the potential to become the top natural gas producer in the United States.

The Fayetteville Shale contains their largest land holding, but they also have large holdings in the Marcellus Shale, Arkoma Basin, Brown Dense, Denver-Julesberg Basin, Overton Field, and rights to search for oil and gas in New Brunswick. In all of these areas, Southwestern Energy Company (NYSE:SWN) has over 4,700 gross producing wells.

The stock has been on the rise, gaining over 12.75% year-to-date. Here are some of the highlights from their fourth quarter 2012 earnings report released in February:

Earnings per share of $0.44, meeting analyst expectations
Oil and gas production increased 12% year-over-year
Operating income from midstream services increased 14.9%
Gas sales increased 4%
Oil sales increased 37.2%

Earnings per share for the year decreased by 23.6%, but will be on the rise over the next 3 years. Analysts project earnings to reach $2.24 in 2015, representing a 61.2% growth from 2012.

If natural gas prices are to rise, Southwestern could have more explosive earnings growth than the 61.2% expected. I think this will happen and propel the stock much higher. Southwestern Energy Company (NYSE:SWN) is a long-term investment worth making.

The Supplier

Hi-Crush Partners LP (NYSE:HCLP) is a leading producer of premium monocrystalline sand, which is a specialized mineral used as a “proppant” in hydraulic fracturing. Hydraulic fracturing, or “fracking,” is a process in which shale rock is drilled and injected with fluids at a high pressure to release natural gas located in the rock. The proppant enhances the recovery of hydrocarbons from oil and gas wells, making a more efficient process.

A huge positive for Hi-Crush Partners LP (NYSE:HCLP) is their rail infrastructure. They have a location with full access to Union Pacific’s mainline, which are able to reach all major shale basins in the United States. The ability to produce at low costs and ship directly to the customer on-site sets Hi-Crush Partners LP (NYSE:HCLP) apart from their competition.

They reported fourth quarter 2012 earnings on Jan. 31, which disappointed analysts, but was very positive overall. Here is a summary:

Earnings per share of $0.35 versus estimates of $0.47
Revenues increased 27.9% to $16.215 million
Gross profit increased 36.4% to $11.902 million
Net income increased 53.2% to $9.399 million

Management stated that, “increased drilling… combined with strong demand for premium proppants are all working in our long-term favor as we enter 2013.” Over the next 3 years, earnings are expected to be on the rise.
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