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COPYRIGHT 2005 Access Intelligence, LLC.
During 2004, virtually all upstream stock prices increased, many of them to new highs. For some, it was a matter of mere math: rising commodity prices simply lifted all boats. So, which E&P stocks are true stand-outs for 2005? Oil and Gas investor surveyed several analysts for their favorites among small-cap stocks and larger issues.
Micro-caps Mission Resources Corp. and ATP Oil & Gas Corp. qualify as under-the-radar hot stock picks, according to Curtis R. Trimble, an analyst at Baltimore-based Ferris, Baker Watts Inc.
Mission Resources Corp. Trimble commends $243-million-market-cap Mission Resources (Nasdaq: MSSN) for its drilling and restructuring strategies during the past year. Management and directors retained Petrie Parkman & Co. during 2004 to assist with strategic review of the company's direction. But, rather than an exit, the Houston-based producer, which focuses on the Permian, Gulf Coast and Gulf of Mexico, decided to push forward.
"In 2003, Mission enjoyed a successful drilling program, completing 85.8% net wells drilled," Trimble says. The company's exploration-drilling program had a 71% success rate on 13 wells. Its capex for 2004 grew to some $52 million from $34 million. And, new management reduced the company's $169.5 million of debt from 63% of book capital to 50%.
"We feel that a strong commodity-price environment and recent drilling successes have eliminated much of the liquidity problems that constrained Mission's growth in recent periods," Trimble says. "Mission's reserve base and prospective near-term production growth offer investors a very attractive risk-reward proposition at current levels."
Mission needed to achieve financial stability, but it also faced the challenge of reinvigorating a stagnant drilling program, Trimble adds. Jack Eells, formerly head of El Paso's Gulf Coast operations, is largely responsible for the development of Mission's exploration program. Eells has brought Mission experience in its core Gulf Coast, South Texas and Permian Basin efforts.
"Mission achieved significant production increases in a cost-efficient manner, reducing cash operating costs from $3.33 per thousand cubic feet equivalent in 2003 to an estimated $2.77 in 2004. This level of cash costs is equal on a per-unit basis with costs in 2002, despite a 26% decline in production due to asset sales."
During the past six quarters, Mission refinanced its debt, divested oil-producing properties with sky-high operating costs, acquired the gas-rich Jalmat Field in the Permian Basin, and engaged in successful drilling projects. While capital expenditures for 2004 were expected to exceed $50 million, Trimble anticipates a 20% to 25% increase in 2005 to more than $60 million--which can make way for the company to make numerous acquisitions and debt-reduction payments.
"In our view, the turnaround phase of Mission Resources is largely completed." He had a Buy on the stock in late November and a $12 price target. At the time, shares were $5.71 each, and the 52-week range was $1.62 to $7.02.
ATP Oil & Gas Corp. Trimble's other E&P darling is Houston-based ATP Oil & Gas (Nasdaq: ATPG), which had a recent market capitalization of approximately $325 million and is focused in the Gulf of Mexico and the U.K. North Sea. While ATP suffered from shut-in production in the Gulf of Mexico after Hurricane Ivan last year, all but one of its operated properties were back online and producing in November.
ATP's track record, for many, was overlooked in 2004. It successfully developed 11 wells on six of its properties, including Matagorda Island 704, West Cameron 237 and Ship Shoal 358. Two additional wells, both at West...
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