EOG Resources Inc (NYSE:EOG) is more of a producer than a driller, in that it looks for projects that require management and then manages them. The stock may be undervalued because it took $849 million in “impairment charges,” mainly on Canadian natural gas assets, during last year’s fourth quarter, swinging those results to a loss. Things were back to normal in the first quarter, when it delivered earnings of about $500 million on revenues of $3.3 billion. Most quarters between 12% and 15% of revenues fall to the bottom line, and like Cabot it keeps its debt-to-equity ratio at a reasonable 25%.
You can expect better results for the next several quarters as EOG emphasizes production of oil from South Texas.
Chesapeake Energy Corporation (NYSE:CHK)
Chesapeake Energy Corporation (NYSE:CHK) practically invented fracking under former CEO Aubrey McClendon, but it got hit hard by the downturn in gas prices and, after a scandal involving his own investments with the company, McClendon retired earlier this year.
A lot of big investors have been bottom-fishing in Chesapeake Energy Corporation (NYSE:CHK) during the scandal period, including Carl Icahn, and the board is now trying to unravel his many deals to extract maximum value from his work.
Chesapeake was the third-largest player in Eagle Ford during 2012, according to the San Antonio Business Journal, producing 15.3 million barrels of oil and 35.5 million cubic feet of gas from 261 leases.
The problem is that the books are still a mess. The company is barely profitable, it has been stripped of cash, and even its cash flow has flat-lined. McClendon still holds substantial assets around Chesapeake Energy Corporation (NYSE:CHK) wells, and untangling him will take both time and legal help. The company has been selling assets to stay afloat.
It’s very possible that, with patience and legal help, Icahn and the other large investors will eventually strike a gusher of profit here. It’s in hopes of this that investors remain in the company, with shares up 24% year-to-date, but since McClendon’s retirement became official on April 1 the stock has gone nowhere.
My Foolish Perspective
Oil drillers are born speculators. But investors should not be.
Among the big players in Eagle Shale, both Cabot and EOG look like good bets. Both are diversified in terms of assets and well-run. Chesapeake, which started the fracking boom in 2009, is more speculative, on many levels.
If you want to pretend you’re an oil speculator, go with Chesapeake. If you’re more concerned about investing, go with guys who know their business.
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