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

Page 1 of 2

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.
Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Top 10 Most Expensive Luxury Cars in the World – 2014

Killer Small Business Ideas

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!