Energy Business

4 Natural Gas Exploration and Production Stocks With Massive Upside Potential

Rice Energy

This independent natural gas and oil company has started to catch some upgrades recently around Wall Street. Rice Energy Inc. (NASDAQ: RICE) is engaged in the acquisition, exploration and development of natural gas, oil and natural gas liquid (NGL) properties in the Appalachian Basin. As of December 31, 2014, it held approximately 86,000 net acres in the southwestern core of the Marcellus Shale, Pa., and approximately 55,000 net acres in the southeastern core of the Utica Shale located in Belmont County, Ohio.

The Cowen team sees Rice as solid takeover candidate with the potential for more than 20% growth over the next few years. They also cite the fact that the midstream asset portfolio provides balance sheet flexibility, and they think that a capital outspend will be required through 2017 to achieve 20% growth.

Cowen has a $23 price target. The consensus target is even higher at $26.73. Shares closed Wednesday at $17.73. Trading to the Cowen target would be a 33% gain.

Range Resources

Cowen likes this defensive natural gas stock now. Range Resources Corp. (NYSE: RRC) holds interests in developed and undeveloped natural gas and oil leases in the Appalachian and Southwestern regions of the United States. The company owns 7,582 net producing wells and approximately 1.4 million net acres under lease in the Appalachian region, as well as 653 net producing wells and approximately 383,000 net acres under lease in the Midcontinent region.

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Some Wall Street reports suggest that the company will send more gas to the Midwest and Ontario, as it likes the large in place pipeline system, significant storage and additional coal to gas displacement opportunities. The company continues to pursue an organic growth strategy targeting high-return, low-cost projects within its large inventory of low-risk, development drilling opportunities.

Shares have been walloped to the tune of almost 50% over the past year. Investors are paid a small 0.47% dividend. Cowen’s target price is $57, and the consensus target is $61. Shares closed Wednesday way below those levels at $34.81. Trading to the target is a monster 66% gain.

Southwestern Energy

This company surprised analysts when it actually lifted its capital expenditure budget for 2015, and the Cowen analysts think there is 33% upside to the stock if it just moves to the multiple the peer group trades at. Southwestern Energy Co. (NYSE: SWN) explores, develops and produces natural gas and oil in the United States.

Southwestern has invested heavily in the Marcellus play, where it holds leases in approximately 337,300 net acres. Reports indicate that the company has increased its acreage in Marcellus by acquiring interests from other stakeholders. Southwestern’s gas production increased to 766 Bcf in 2014 from 656 Bcf in 2013. This will provide it exposure to a play with a low-cost structure and additional acreage. While the Cowen team cites the firm’s leverage as an issue, they feel it clouds the importance of the southern Appalachia purchase, and while the company can grow at current spot levels, the real growth will kick in at $3.50 mcf pricing.

The company also is involved in the gathering, marketing and transporting natural gas, and oil and NGLs. As of December 31, 2014, Southwestern had pipelines of 2,017 miles in Arkansas, 105 miles in Pennsylvania, 25 miles in Texas and 16 miles in Louisiana in its gathering systems.

Cowen has a $25 price objective. The consensus target is $25.91 Shares closed Wednesday at $15.08. Trading to the price objective would be a gigantic 69% gain.

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The energy game is getting harder and harder, and with oil prices slipping back to new six-and-a-half-year lows, looking at the top natural gas producers may be a better growth play over the next two years or so.

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