A few months ago, I criticized three oil and gas companies that should have rewarded their investors, but didn’t. Their first quarter earnings reports have since come and gone, the market has hit new highs, and solar flares have increased. Have any of these impacted the sorry trio of Chesapeake Energy Corporation (NYSE:CHK), SandRidge Energy Inc. (NYSE:SD), or Kodiak Oil & Gas Corp (USA) (NYSE:KOG)?
A new era for Chesapeake Energy Corporation (NYSE:CHK)?
The recent announcement of a new CEO, Robert Lawler, for Chesapeake Energy Corporation (NYSE:CHK) sparked a rally that sent the stock from $20.45 to $21.67 in five days. With good reason as Mr. Lawler is an experienced oilman from Anadarko familiar with Marcellus, Permian Basin and other US energy plays Chesapeake Energy Corporation (NYSE:CHK) actively develops. If nothing else, he’s no Audrey McClendon, at least, so far as anyone knows.
This announcement follows a generally positive Q1 2013 earnings announcement that included a 56% increase in oil production and a 9% growth in natural gas production. However, Chesapeake Energy Corporation (NYSE:CHK) suffers from ongoing low natural gas prices that offset the increased production. Minus the recent Lawler rally, Chesapeake stock trades more or less where it traded six months ago and its dividend yields just 1.7%.
On a happier note, earnings continue to grow and beat estimates. Asset sales continue as Chesapeake strives to eliminate debt. While none of this is new, insider buying picked up this past month and that may herald better times ahead.
Named for a bear, coincidence or omen?
Kodiak Oil & Gas Corp (USA) (NYSE:KOG) produces oil from Bakken oil shale, an oil play producing profits for such companies as Continental Resources, Inc. (NYSE:CLR). Unlike Continental Resources, Inc. (NYSE:CLR), Kodiak Oil & Gas Corp (USA) (NYSE:KOG) needs to reward its investors for their patience and capital. While revenues, production and reserves increased during the latest quarter, earnings failed to keep pace. Specifically, revenues came in at just over $165 million, a gain of over $30 million from the previous quarter, but earnings dropped from $0.13 to $0.07 a share. The stock dropped then recovered, but is still barely where it was at the beginning of the year.
One ongoing issue centers on production costs. While Continental boasts drilling costs of $8.3 million per oil well and dropping, Kodiak Oil & Gas Corp (USA) (NYSE:KOG) reports drilling costs over $10 million per well. The company knows this is a problem, has improved costs since 2011, but still pays more than its competitors.
Lastly, one ominous sign for investors has been insider trading. From December 2011 to March 2013, insiders sold over 1.5 million shares. While selling has stopped, insider buying remains non-existent. This trend concerns me. If Kodiak Oil & Gas Corp (USA) (NYSE:KOG) improves its production, reserves, and revenues, why are company insiders not getting onboard?
Big gamble paying off?
SandRidge Energy Inc. (NYSE:SD) startled many with its sale of proven producing assets in the Permian Basin to fund acquisitions in Mississippian Lime in northern Oklahoma and Kansas. So far, so good in terms of production and drilling costs. Cap Ex is projected to be below previous guidance to help improve return on invested capital and maximize longevity of its current cash position. Important infrastructure assets, namely saltwater disposal facilities and electricity (to reduce the use of electric generators by its drilling rigs), are in place and should improve earnings as the company continues exploring and developing its assets.
The most recent earnings conference call showed SandRidge Energy Inc. (NYSE:SD) beating earnings forecasts by breaking even versus estimates of a $0.06/sh loss. The company reduced its debt by $1.1 billion over the previous quarter and promised further reductions in general and administrative expenses in addition to drilling costs. An uptick in insider trading since late March suggests SandRidge Energy Inc. (NYSE:SD)’s many infrastructure efforts might just pay off later this year.
Downside? The drama over CEO Tom Ward and his family’s dealings in the same Mississippian Lime play. Concern persists Ward may be disproportionately concerned about his family’s holdings than his company’s holdings. Activist investors believe the Ward family’s acreage being immediately adjacent to SandRidge Energy Inc. (NYSE:SD)’s assets is no coincidence and have worked to have Ward removed. These investors may get their wish this summer, but until then, the uncertainly likely will weigh on the stock.
Final Foolish Thoughts
The arrival of Marissa Myers as Yahoo! Inc. (NASDAQ:YHOO)’s new CEO precipitated a 55% increase in the stock’s price. Will Lawler’s arrival at Chesapeake do the same for his company? The 5% increase in five days is a nice start and growing oil production and slowly rising natural gas prices will help the company’s growing earnings. Similarly, improving production and built out infrastructure in the Mississippian Lime will improve SandRidge’s fortunes going forward. Once the Ward drama resolves, I suspect investors will look favorably on SandRidge’s operations and prospects. Kodiak remains a stooge. Earnings should rise with revenues and with Kodiak, it’s not happening. Until Kodiak converts more of its revenues to earnings, I’d follow the lead of its insiders and stay away.
Robert Zimmerman has the following options: Long Jan 2014 $22 Calls on Chesapeake Energy. The Motley Fool has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy.
The article Where Are the 3 Stooges Now? originally appeared on Fool.com and is written by Robert Zimmerman.
Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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