Small-Cap Oil Companies

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Mar 13th, 2007 | By | Category: Commodities

Even though oil prices have come off their recent lows, investors are still ignoring the oil and gas industry.

We last wrote to you about cheap gas in January, when crude was trading as low as $50 a barrel. Heck, around the holiday season, some people were filling their tanks for less than $2 a gallon.

We warned in January that the break we’d experienced in higher oil prices probably wouldn’t last too much longer. We’ve seen crude trading above $62 a barrel again (it’s slipped to under $60 a barrel today). There have also been reports of $3-a-gallon gas on the West Coast over the past couple of weeks.

However, our collective oblivion to one of the world’s most profitable businesses continues.

In January, the P/E ratio of the independent oil and gas industry was 12.6. Major oil companies had an average P/E of only 9.8. (Just for reference, the average P/E of the S&P 500 is around 20.6).

Now, the average independent oil and gas outfit is still trading at about 13 times earnings. The P/E of big oil has even dipped a little to 9.4.

Did we all just forget just how much money is in oil?

From 2002 to 2005, the top 10 major public oil companies sold $1.5 trillion worth of crude, according to MSNBC. And they turned more than $125 billion in profits. Just last year, Exxon Mobil grabbed the record for the biggest annual profit by an American company, posting a net income of $39.5 billion.

With all of this in mind, three independent oil companies graced these pages six weeks ago. All three of them had price-to-earnings ratios of less than 10, and only one traded above $10 a share.

Here’s where they stand today:

Callon Petroleum (CPE: NYSE)
Market Cap: $277 million
Price/Earnings: 7.3
Price/Sales: 1.59
Recent Price: $13.40 — Six weeks ago, you could have bought shares of Callon for about $13.70.

Callon explores and produces natural gas and oil from the Gulf Coast. It has joint ventures with British Petroleum and Murphy Oil to explore more sites in the Gulf of Mexico. Callon has reported estimated proven reserves of 188.6 billion cubic feet of natural gas equivalent.

Market Cap: $373 million
Price/Earnings: 7.5
Price/Sales: 2.9
Recent Price: $5.07 — VAALCO’s share price dropped from $6.40 only six weeks ago. The company announced last week it sold 50,000 fewer barrels of oil last quarter at an average price of $57.36 per barrel.

VAALCO develops land for oil and natural gas production in the Texas Gulf Coast and also Africa. In its most recent quarterly earnings announcement, VAALCO reported net income that had risen more than 16%.

Brigham Exploration (BEXP: NASDAQ)
Market Cap: $266 million
Price/Earnings: 8.8
Price/Sales: 2.3
Recent Price: $5.85 — Brigham traded for $5.75 a share six weeks ago.

Brigham announced earlier this month that the company would spend $100 million drilling for oil and gas this year.

Brigham has wells in Texas, Oklahoma and Louisiana. The company finds its oil and gas by using high-tech seismic equipment. Brigham has estimated reserves of 133.2 billion cubic feet of natural gas equivalent.

Keep an eye on these shares as rising oil prices begin to grab headlines…

March 13, 2007

P.S.: We haven’t forgotten about great energy plays in Penny Stock Fortunes, either. Read on to get the scoop on one small oil outfit that’s a play on both conventional and alternative energy.

Author Image for Greg Guenthner

Greg Guenthner

Greg Guenthner, CMT, is the co-editor of STORM Signals and Penny Stock Fortunes. He is also the editor of Agora Financial’s Trend Playbook, a free resource for trend followers and technical traders. For close to a decade, Greg has led Agora Financial’s small-cap division, where he founded one of one of the only independent OTC research advisories in the industry. Greg specializes is classical trading techniques and combines timing strategies with his fundamental analysis of small-cap stocks.

He is a member of the Market Technicians Association and hold the Chartered Market Technician designation. 

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