Five Exploration and Production Companies with No Debt
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Many exploration and production companies look to grow oil and gas production and reserves as rapidly as possible, as a means of creating value. These companies frequently utilize debt to fund these aggressive growth programs and end up with problems when commodity prices fall. Despite this industry preference for debt financing, there are still some exploration and production companies that shun debt and operate without borrowing.
Debt Free
Sanchez Energy (NYSE: SN) reported no debt and cash and cash equivalents of $34.7 million at the end of the second quarter of 2012. This no-debt situation probably won’t last long as the company does have an aggressive growth plan set for its Eagle Ford Shale acreage in 2012. Sanchez Energy has budgeted from $135 million to $155 million in 2012 to drill and complete 17.5 net wells in the Eagle Ford Shale during the year and will also use some of the proceeds to acquire additional leasehold.
Evolution Petroleum (NYSEMKT: EPM) was founded in 1983 and is also debt free. The company’s core asset is the Delphi enhanced oil recovery (EOR) project in Louisiana where carbon dioxide is injected into older wells to stimulate additional production.
Evolution Petroleum farmed out this project to Denbury Resources (NYSE: DNR) in 2006 and receives a royalty stream from this project. The company is now working on several other oily projects in the United States and has established a position in Oklahoma prospective for the Mississippi Lime. Other properties the company is working on include the Lopez and Giddings Fields in Texas.
Cobalt International Energy (NYSE: CIE) is an independent exploration and production company active in the Gulf of Mexico and West Africa. The company went public in late 2009, raising approximately $851 million in proceeds.
Cobalt carries no debt and reported $1.8 billion in restricted and unrestricted cash at the end of the first quarter of 2012. The company plans significant exploration spending in 2012 and estimates that it will end the year with between $600 million and $900 million in restricted and unrestricted cash.
Another debt-free company is Contango Oil & Gas (NYSEMKT: MCF), which operates mostly in the shallow water area of the Gulf of Mexico. The company reported no short or long-term debt as of June 30, compared to cash and cash equivalents of $129.9 million. Contango believes that having no debt provides the company with a competitive advantage over other exploration and production companies.
Although most of the company’s production and proved reserves are located in the Gulf of Mexico, Contango has quietly moved into several emerging onshore resources plays over the last year. These include the Duvernay Shale in Alberta, Canada, and the Tuscaloosa Marine Shale in Louisiana and Mississippi.
Gran Tierra Energy (NYSEMKT: GTE) is a Canadian-based exploration and production company that is active in South America, with core operations in Brazil, Colombia and Argentina. The company reported no debt and cash and cash equivalents of $128.5 million as of June 30.
Gran Tierra has budgeted $396 million in capital spending in 2012 for drilling activities, leasehold acquisition and infrastructure and plans to fund this spending with operating cash flow and cash on hand.
Investors that are worried about the strength of global economic growth and the possibility of a future recession might want to consider companies that are not burdened with excessive debt. There are several debt-free companies in the energy sector for investors to choose from that will have more operational flexibility if commodity prices take another tumble.
shaleplays has no positions in the stocks mentioned above. The Motley Fool owns shares of Denbury Resources and SANCHEZ ENERGY CORP COM USD0.01. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.
