The Raymond James team favors oil and gas companies with a bigger and more diversified asset base, given the current uncertainty on where the prices of commodities are going, says Andrew Coleman, Managing Director at Raymond James & Associates, Inc. The RJ team also looks for lower leverage and reduced execution risk.
“On the oil side, I’d look at someone like Continental Resources (CLR). Short term, they’ll grow almost 60% in 2012. Their forecast for 2013 is north of 30%. They have the balance sheet to withstand outspending by about $1 billion next year by our model. And if you want to go a little bit longer term, Denbury Resources (DNR) is attractive on the oil side given the large resource potential management is ramping up through its tertiary oil operations,” Coleman said.
Coleman also looks at the gas side, where he prefers companies located or with exposure to the most attractive basis. Although he has a “market perform” rating on these companies given their high valuation and the not-bullish call on natural gas from the RJ team, but he says it’s worth to keep an eye on whether fundamentals improve.
“Based on what I’ve seen from an IRR standpoint, the Marcellus is the best-returning gas play out there. Players like Cabot (COG) and Range (RRC) have the biggest exposure there, with perhaps Southwestern (SWN) or Ultra Petroleum (UPL) too,” Coleman said. “They are worth keeping an eye on if fundamentals keep improving.”
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