The oil and gas industry has seen strong production growth namely in onshore U.S., where many of the gas-heavy portfolio exploration and production companies have started making a switch toward unconventional oil and natural gas liquids. Oasis Petroleum Inc. (NYSE:OAS) is an independent exploration and production company focused on the development and acquisition of unconventional oil and natural gas resources in Montana and North Dakota. For the nine months ended September 2012, Oasis posted net income of $1.01 per share compared to $0.54 per share for the same period a year ago. Oasis trades near the top end of the industry at 30x earnings and 11x cash flow, but it appears these high multiples are justified by its 35% expected annual EPS growth over the next five years. Also boding well for the energy company is its industry-leading 70% EBITDA margin.
Devon Energy Corporation (NYSE:DVN) is another Bacon pick and is expected to see 2012 production up across the board – 21% for oil and 10% for natural gas liquids. Devon is one of the top onshore exploration companies, having sold off various offshore assets to boost its onshore portfolio. The energy company sold off $10 billion of assets from the Gulf of Mexico and Brazil, and plans to use upwards of $8 billion for buying up onshore assets. One of Devon’s newest initiatives is in the Canadian oil sands, with its Jackfish project and new joint-venture in the Kirby Oil Sands. This should boost oil sands exposure, where it sees 20% annual production growth through 2020. Billionaire T. Boone Pickens is one of Devon’s big-name investors (check out T. Boone Pickens’ newest stock picks).
Marathon Oil Corporation (NYSE:MRO), meanwhile, pays the highest dividend yield at 2.2% of Bacon’s five stocks listed here. Again, like the other major energy companies, growth for Marathon is expected to be driven by onshore production. The energy company expects 2013 production to be up 8% on the back of a 5% rise in CapEx – up to $5.2 billion. Like other major oil and gas companies, Marathon plans to make a near-term push toward onshore, with 55% of CapEx being allocated toward this area. Marathon also expects robust long-term production growth – expected to come in at 7% annually through 2017. Ken Griffin – founder of Citadel Investment Group – was Marathon’s top fund owner of those we track with over 4 million shares last quarter (check out Ken Griffin’s new picks).
What about the remaining two picks?
EOG Resources, Inc. (NYSE:EOG) has moved its focus to unconventional liquids, shifting its portfolio mix to limit exposure to gas volatility. Specifically, the oil and gas company has shifted to horizontal oil prospects versus deepwater plays or Canadian oil sands. The energy company is targeting FY2012 production to be up 11%, compared to 9% in 2011 – this includes oil production up 40%. EOG plans to focus upwards of 90% of this year’s CapEx on liquids-rich plays, and has divested $1.2 billion of non-core assets to offset an expected funding gap. EOG trades in the mid-range of its peers at 27x earnings and 6.5x free cash flow, but it does have some of the more robust growth prospects – expected to grow 5-year EPS at 22% annually. Billionaire Jim Simons was one EOG’s top-name investors last quarter (see Jim Simon’s top picks).
Kodiak Oil & Gas Corp (NYSE:KOG) is focused on the exploration and production of crude oil and natural gas in the United States. Kodiak now looks to develop its robust portfolio of assets. The energy company plans to grow production 80% year over year during the interim. Worth noting is that Kodiak does trade at the high end of the industry on a valuation basis at 9.8x 2012 EBIDTA, versus the industry average of 6.9x; not to mention its 40x P/E, which is well above Marathon (12x) and EOG (27x). Steven Cohen of SAC Capital upped his stake by 600% in the oil and gas company last quarter (check out Steven Cohen’s big bets).
Clearly, Bacon has made big bets in the energy markets, from natural gas, conventional oil to oil sands projects. While it appears Kodiak might be gearing up for a production overhaul, its valuation is a bit rich, but EOG is one of the better value plays. We like Devon’s monetization strategy, but believe growth in the interim will be limited. Meanwhile, Oasis’ growth prospects look solid and its valuation appears a bit cheap. Marathon is one of the larger energy picks by Bacon – one that pays a decent dividend and presents investors with a value opportunity.
For more related coverage, continue reading below:
Louis Bacon’s Full 13F Portfolio
