The much-discussed North American shale oil and gas boom of the last few years is in large part a function of technological advances that have given companies access to previously unthinkable reserves of oil and natural gas.
While we are a long way from having a clear picture of the extent to which this will impact the nature of the global energy economy, to say nothing of how it might affect the many different political interests that are an inextricable part of that economy, there have been some indications that change of some kind is inevitable.
Indeed, the increasing importance of shale-based oil and gas may have something to do with the fact that the world’s leading major oil and gas companies, ExxonMobil (XOM) , Royal Dutch Shell ($RDS-A), and Chevron (CVX) , all recently reported anemic second-quarter profits as they have struggled to meet production targets.
At the same time, independent companies oil and gas companies such as Occidental Petroleum (OXY) , Marathon Oil (MRO) , and EOG Resources (EOG) have outperformed their much larger peers on a consistent basis throughout 2013. Independent companies have in many instances proven more nimble in positioning themselves around the increasing centrality of shale energy, as they are less burdened by the exigencies of operating in all stages of the oil economy.
The following five stocks have been selected from the independent oil & gas industry, a subsector of basic materials, according to a number of fundamental criteria that, taken as a whole, indicate a potentially attractive investment choice.
The following US-based micro and small-cap stocks all share characteristics that are generally considered to be desirable based on the specifics of the industry. First, the price-to-cash ratio is an important indicator for basic materials stocks, and this is especially the case for companies with a p/c ratio greater than 1, as this is typically a sign of ample cash with some left over for reinvestment.
Return-on-investment and return-on-equity rates of greater than 20 percent are a possible sign that a company is moving its cash wisely. This is especially important in the basic materials sector, where projects often tend to take many years to complete.
A positive dividend yield is also an important sign, as basic materials industries are not usually known for high-growth. Thus, a company that can manage any dividend yield is more likely to be resting on solid footing.
As an added bonus, the following companies have debt/equity and long-term debt/equity ratios of 0, a further sign that cash flows are being properly and efficiently managed.
SandRidge Permian Trust (PER)
SandRidge Permian Trust is a holding company whose principal holdings consist of oil and gas properties in the Permian Basin in Andrews County, Texas. The $781 million market-cap trust has an ROI rate of 25.4 percent, and an ROE rate of 24.9 percent, and sports a healthy dividend yield of 15.75 percent. With shares trading at $14.88, SandRidge is down 2.5 percent on the year.
SandRidge Mississippian Trust I ($SDTO)
The Austin, Texas-based company holds royalty interests in wells drilling in the Mississippian basin that stretches beneath several counties in Oklahoma. With a market cap of $371 million, the trust offers an ROE rate of 30.1 percent, an ROI rate of 32.4 percent, and a dividend yield of 18.4 percent. Shares are trading at $13.25, down almost 9 percent year-to-date.
Delek Logistics Partners LP (DKL)
Descendent of the Israeli exploration company of the same name, Delek operates crude oil and refining logistics and marketing in the US, primarily from extraction-work in Tyler, Texas, and El Dorado, Arkansas. In its Israeli iteration, the company is a major player in the nascent shale-boom currently taking shape in the volatile Eastern Mediterranean. Delek Logistics has a market cap of $364.8 million, with an ROE rate of 54.9 percent, an ROI rate of 35.2 percent, and a dividend yield of 5.2 percent. Shares are currently trading at $30.40, up 36.6 percent year-to-date.
VOC Energy Trust (VOC)
The Austin, Texas-based VOC Energy is a trust that holds interests on the net proceeds from oil and gas production operations throughout Texas and Kansas. With a market cap of $258 million, the company has an ROE rate of 27.6 percent, an ROI rate of 30.4 percent, and a dividend yield of 10.8 percent. With shares trading at $15.19, the company is up 28.75 percent in 2013.
Whiting USA Trust II (WHZ)
The Austin, Texas-based trust is operated as a subsidiary of Whiting Petroleum Corp. (WLL) , an independent oil and gas concern that is present throughout the US. With a market cap of $254.5 million, the trust offers a 34.3 percent ROE rate, a 28 percent ROI rate, and a generous dividend yield of 18.3 percent. Shares are currently trading for $13.8, down 1.6 percent on the year.