7 Oil and Gas Stocks With Continued Upside: Part V

In this fifth installment of oil and gas exploration and production companies with upside, I am covering names with a market cap of over $1.1 billion.

The first stock we'll look at is Encore Energy Partners (ENP). This may be my favorite MLP. ENP sports an 8.6% dividend and shares have gone from $15 per share in late May of 2010 to $23.44 at Tuesday's close. In February of 2007 it was formed by Encore Acquisition Company. In March of 2010, it was purchased by Denbury Natural Resources (DNR). Some of these assets were then sold to Vanguard Natural Resources (VNR). This all-stock deal effectively merged very important holdings of both companies. Its Permian assets are quite good, as are the Bakken properties.

Clayton Williams (CWEI) is a stock I currently own. Clayton has quietly grown 140% over the past year. Clayton breaks down into two areas. The first is the Permian Basin, where Clayton has 198000 net acres. Clayton had an average daily net production in 2010 of 8319 Boe. Proved reserves in the Permian are 38 MMboe as of the end of 2010. Clayton has 254000 net acres in the Giddings area. Giddings proved reserves as of the end of 2010 were 11 MMBoe. Average daily net production in 2010 was 4144 Boe. Clayton also owns 12 drilling rigs, currently drilling in the Permian and Giddings areas. In 2010 this company's product mix was 74% oil and natural gas liquids. This was an increase from 62% in 2009. Clayton will be spending $381.8 million on exploration and development in 2011. In all, $295.3 million will be spent on the Permian while $80 million will be spent on Giddings. Overall, Clayton has two very large and lucrative areas to drill in Texas. Its access to drilling rigs is also helpful in increasing production. The majority of its production is oil, but the company has a large portion of its natural gas hedged.

The next stock, Northern Oil & Gas, Inc. (NOG) has had difficulty in the short term. Without getting into the reasons why, I would direct you to this link, as it gives a precise reasoning for Northern's valuation. That is not to say that the bears are wrong, because rumors are just rumors until they become facts or mistakes. For more information on Northern please read Northern Oil and Gas: Benefitting from Bakken Non-Operator Model. The best way to analyze Northern Oil & Gas is to follow the analysts. Here are a few:

1. SunTrust Robinson Humphrey (Buy, Price Target $40)
2. CanaccordGenuity (Buy, Price Target $40).
3. Northland Securities (Outperform, Price Target $37)

All three of these came out after the release of Street Sweepers' and Bronte Capital Managements' questions into Northern's accounting practices. Another way to examine is by checking EPS trends. Over the past 30 days, EPS revisions have been guided upward, not downward:

• First Quarter of 2011- Guided Up Once
• Second Quarter of 2011- Guided Up Once
• 2011 Full Year- Guided Up Twice
• 2012 Full Year- Guided Up Twice

Another key metric is growth. Of the eight analysts covering Northern, their average estimate for full year of 2011 has Northern growing 248.4% this year. The seven analysts' estimates have Northern growing 78.7% in 2012. Finally, when 12 month growth is figured into Northern's P/E ratio of 169, it falls to a forward P/E of 12.29, which seems inexpensive. I could be wrong, and maybe Northern is overvalued, but the facts don't support this.

Gulfport Energy Corp. (GPOR) is a company I have been bullish on since my article Gulport Energy Corporation: Value Play on Diversified Assets. This one surpassed my projections as it is up 51.8% in the past three months. Gulfport had 2010 net production of 5412 Boep/d. It estimates 2011 will be 6027 to 6575 Boep/d. Gulfport's areas of operation are:

1. Canadian Oil Sands- 133407 net acres
2. Niobrara- 19172 net acres
3. Permian- 14723 net acres
4. Southern Louisiana- 13998 net acres
5. Utica Shale- 13750 net acres (Pending Acquisition)
6. Thailand- Four Onshore Concession Blocks

Gulfport is currently 90% oil. And 85% of the company's acreages are operated. Its Canadian Oil Sands position could give access to up to 500 million barrels of oil resources (Gulfport Estimate). The 500 locations in the Permian could double on 20 acre spacing. Gulfport will be drilling four to five vertical wells in the Niobrara this year. Lastly, Gulfport believes its Thailand acreage could be a world class play. The gas field in Thailand is exciting based on current prices in that country. Overall this company has very large upside, based on several good locations.

Stone Energy Corp. (SGY) seems to be on the right track. Stone has made significant improvements to its business since December 31st of 2009. As of the end of 2009, company fundamentals are as follows:

• Enterprise Value: $1.3 Billion
• Bank Debt Outstanding: $175 Million
• Cash: $69 Million
• Liquidity: $226 Million
• Est. Proved Reserves: 68.5 MMboe

As of March 31st of 2011 these numbers are:

• Enterprise Value: $2 Billion
• Bank Debt Outstanding: $0
• Cash: $113 Million
• Liquidity: $415 Million
• Est. Proved Reserves: 79 MMboe

Stone's 2011 estimated capital expenditures will equal $425 million. It breaks down as follows:

• 27% GOM Shelf Exploitation
• 26% Appalachia
• 18% Deep Gas/Deepwater
• 15% GOM Shelf P&A/Facilities
• 11% GOM Shelf Recompletions
• 3% Other

Stone has improved its business by expanding its liquids business. Stone's proved reserves are 58% gas and proved producing is 41% gas. I am not nearly as bullish on this company, but would watch it based on short term outperformance.

Rosetta Resources Inc. (ROSE)

 has doubled since September 2010. From 2009 to 2010 Rosetta increased proved reserves 36%. Its capital budget for 2011 is $360 million. Rosetta plans to focus on the Eagle Ford this year and 90% of its capital will be spent here. Forty Eagle Ford wells are planned in the 2011. This is part of Rosetta's expansion in liquids production. Six wells have been drilled in the Alberta Basin. Five additional wells are planned here in 2011. Asset sales are scheduled in the D-J Basin and Sacramento Basin. Rosetta's current resource areas are:

• Southern Alberta Basin-300000 Net Undeveloped Acres
• Eagle Ford-77% Liquids
• Lobo Trend
• D-J Basin
• Sacramento Basin

For 2011, Rosetta will focus on its Eagle Ford acreage. The Eagle Ford is a good reason to be bullish on this company. It has a low cost/moderate reward and 77% liquids production. After selling some of its non-core properties, Rosetta has stated it will reinvest this money into the business. The Alberta Basin also provides significant upside. For a more in depth look at this company please check out Rosetta Resources: Eagle Ford will Provide Years of Success.

Oasis Petroleum (OAS) is a Bakken play. This company is 92% oil weighted and has 303000 net acres in the Bakken/Three Forks trend. Its identified inventory is 1303 drilling locations. The Three Forks formation adds 1100 possible locations. Oasis has a $441 million budget for drilling in 2011. This should increase production significantly. Wells planned in 2011 are:

• West Williston- 43.6 Net Wells
• East Nesson- 5.6 Net Wells
• Sanish- 3.9 Net Wells

With a seven rig program, Oasis has 22 years of drilling inventory. Average daily production has increased significantly. From the first quarter of 2009 to the second quarter of 2011 (estimate), Oasis has a CAGR of 114%. Cap ex for 2011, by location, is being spent on:

• West Williston- 83%
• East Nesson- 12%
• Sanish- 5%

There are several reasons to own Oasis. It has a high percentage of oil production. Its acreage is large with a drilling inventory that will take decades to complete.

The companies on this list have significant upside going forward. Companies with large oil drilling inventories should do well into the foreseeable future.