At this point, everyone knows just how powerful the shale revolution has been for America and the various energy stocks tapping that abundance. What’s surprising is just how much oil and natural gas these formations continue to pump out.
Take Pennsylvania’s mammoth Marcellus shale, for example.
Already the kingpin of America’s natural gas production, the Marcellus is poised to boom, according to a new study. According to analysts at Morningstar (MORN), the formation will pump out 14 to 20 billion cubic feet per day by the end of 2015. Putting that into context, the Marcellus shale will be the biggest driver of domestic dry gas production growth and will represent 25% of all U.S. gas production by 2015.
That’s a heck of a lot of gas.
It’s also a ton of profits for the various E&P firms tackling the play. Here are five of the best energy stocks to buy now for betting on the mammoth Marcellus output.
Energy Stocks To Buy #1 — Range Resources (RRC)
For investors looking for energy stocks in the Marcellus shale, the first stop has to be Range Resources (RRC). The firm holds one of the largest acreage positions in the region — around one million acres — and continues to be king in terms of production. In fact, RRC managed to increase its full production in 2013 by 25% over 2012’s numbers.
But RRC isn’t resting on its laurels.
Range continues to prospect on its properties and estimates that it has the potential to grow its proven reserves from a current 8.2 trillion cubic feet (Tcf) to a monster 64 Tcf. The other key for that reserve growth is that RRC’s sizable position in the Marcellus shale has it in the more profitable liquids producing regions of the play. Natural gas liquids (NGLs) production continues to grow at RRC — it was up 35% vs. last year’s numbers.
This production growth — along with some of the lowest costs around — have helped RRC stock generate constantly higher profits. Analysts predict that RRC stock will grow earnings per share by an average of 34% over the next five years. That makes RRC stock a powerful buy in the Marcellus.
Energy Stocks To Buy #2 — Rex Energy (REXX)
Small-cap producer Rex Energy (REXX) continues to be a workhorse in the Marcellus shale. REXX continues to surprise even its own management with just how much natural gas and NGLs it continues to frack. For the recently reported fourth quarter, REXX saw it daily production jump 49% compared to a year ago. At the same time, full year production rose 38% throughout all of 2013.
And management is predicting a 57% jump in production this year.
Believe it or not, REXX may just beat management’s expectations once again. The company recently upped its capex budget to focus on adding additional liquids production in the Marcellus. It should be quite successful at doing that, as its acreage in the play straddles much of the same areas as the previously mentioned RRC.
Rex Energy currently isn’t profitable — based on a recent earnings miss. However, REXX stock does trade at relatively cheap forward price-to-earnings ratio of around 18. And with a market cap of less than a $1 billion, REXX stock is perfect buyout bait for a larger firm.
Energy Stocks To Buy #3 — EQT (EQT)
Holding nearly 580,000 gross acres and 8.3 Tcf worth of proved reserves, EQT (EQT) could be one of the best energy stocks to play the Marcellus shale. Aside from the 14,000 wells it owns in the entire basin, EQT has a few aces up its selves.
First is EQT’s exposure to Devonian shale. This play basically lies on top of certain parts of the Marcellus shale and is equally as prolific. EQT is planning on drilling both the Marcellus and Devonian from a single well pad. That will enable it essentially double its production from it well, while only realizing a slight bump in production costs.
The second piece to EQT’s success is its pipeline MLP subsidiary EQT Midstream (EQM). EQT stock has been able to “drop down” gathering and natural gas transportation assets it uses into EQM in return for plenty of tax-friendly distributions. EQT basically pays a fee to use these pipes, then kicks much of that back as a dividend from the MLP.
At the end of day, EQT stock could be one of the best all-around and most consistent energy stocks in the entire Appalachian region.
Energy Stocks To Buy #4 — Rice Energy (RICE)