Meet the Shale Plays of the Small-Cap Stars Index

Michael Teague  |

Given the sensationalism and excitement that has accompanied the North American "Shale Boom" in recent years, it almost seems as though the oil and gas industry is and never has been anyhing other than independent companies, eagerly and dutifully drilling and pumping us all into a geopolitically hermetic, worry-free state of energy independence. At the same time, it is difficult to imagine some sort of outcome in which shale does not play an increasingly central role in satisfying humankind's need for fuel and gas products.

With everyone rushing to get in on the game all at once, however, it can be overwhelming trying to figure out which drillers and explorers have the capacity to generate returns, and nowhere is this more true than in the small-cap space, where the rewards and risks both carry the potential to be more pronounced, and investment decisions can quickly become regrets without patience and more diligent research.

For investors looking to play the shale boom with stocks, an excellent starting-point from which to consider the options can be seen in four components of the Small-Cap Stars Index, all of whom are shale producers who pump as much or more of the far more lucrative shale oil than they do natural gas. This provides them not only with bigger profits, but also a type of hedge against fluctuations in global energy prices:


Carrizo Oil & Gas Inc. (CRZO)

Industry:Independent Oil & Gas

Market-Cap:$1.79 billion


Shale Plays:Barnett, Eagle Ford, Fayetteville, Marcellus, New Albany, Niobrara, Woodford

Incorporated in 1993, the Houston, Texas-based Carrizo is an unassuming but ubiquitous shale-boomer with an attractive oil portfolio, though it just announced its first foray into the vast gas fields of the Utica Shale. And though the company’s shares have doubled their list price in just a year’s time, there is no telling how long the company will be  on sale for such a discount. For the time being, Carrizo is trading at around 20 times earnings, less than half the industry average.


Matador Resources (MTDR)

Industry:Independent Oil & Gas

Market-Cap:$1.14 billion


Shale Plays:Haynesville

The Dallas, Texas-based company is excited about 2014, telling investors to expect a nearly 50 percent increase in oil production, and a 14 percent hike for natural gas. THe company is one of the more familiar independent drillers currently riding the crest of the shale boom, and enjoyed a huge 2013, with shares adding nearly 150 percent


Resolute Energy Corporation (REN)

Industry:Independent Oil & Gas

Market-Cap:$632.31 million


Shale Plays:Bakken, Niobrara, Permian Basin

Resolute is a Denver, Colorado-based independent whose estimated 80 billion barrels of reserves are particularly attractive, though.its numerous operations include plenty of natural gas as well. 2013 saw the company’s stock in the red, however, as its earnings multiple, still in the multiples of hundreds, proves to be a sticking point for investors. Be that as it may, a nearly 92 percent rate of institutional ownership is a pretty good indication that analysts see better times ahead.


Abraxas Petroleum (AXAS)

Industry:Independent Oil & Gas

Market-Cap:$292.22 million


Shale Plays:Bakken, Barnett, Eagle Ford, Niobrara, Permian Basin

The San Antonio, Texas driller is coming of a solid 2013, with shares gainin around 40 percent. The company is barely a small-cap and has no earnings to speak of, but probably not for much longer, given the presence it has managed to establish for itself in no less than five of the nation’s most lucrative producing regions. Abraxas also offers an impressive shale oil portfolio that allows it to profit from higher crude prices, and to hedge itself against lower gas prices.

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DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:

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