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The Secret to Making 20-Fold Gains in Oil and Gas

By Matt Badiali, editor, S&A Resource Report
Wednesday, November 24, 2010

Over the past 10 years, energy investors have made ridiculous gains following one simple strategy: own America's most relentless "gas growers."
 
Gas grower Chesapeake Energy climbed more than 20-fold from 2000 to 2008. Gas grower Range Resources climbed more than 45-fold during the same time. This kind of gain can turn a modest investment of $10,000 into enough money to pay cash for a new house.
 
These "gas growers" are natural gas exploration firms that mastered horizontal drilling and fracking of natural gas fields. These new technologies have turned the U.S. into a country that planned to import gas, to home of the world's largest supply in less than a decade. And they've turned Chesapeake and Range into large companies... so large that their hypergrowth stages are over...
 
But while the incredible gains are gone for these big gas companies, you can still use their template to set yourself up for another potential 20-fold gain. The secret is to focus on relentless reserve growth.
 
Here's a table of other successful growth stories:
 
Company
5-Year Compound Reserve Growth
5-Year Share Price Growth
Contango Oil and Gas
196%
714%
Southwestern Energy
41%
492%
Whiting Petroleum
14%
316%
Range Resources
22%
213%
Carrizo Resources
41%
159%
 
Here's the thing: Three of the five companies in the table above have over a trillion cubic feet of natural gas and oil reserves. At that level, to grow reserves by 10%, the company must add 100 billion cubic feet of natural gas in addition to replacing its production. That's incredibly hard to do.
 
So investors looking for the next Chesapeake should focus on companies with high growth history but small market values, like these...
 
Company
5-Year Compound Reserve Growth
Market Value
Goodrich Petroleum (GDP)
33%
$527 million
ATP Oil and Gas (ATPG)
24%
$770 million
Penn Virginia (PVA)
21%
$756 million
Contango Oil and Gas (MCF)
196%
$913 million
 
These are just a few examples. Plenty of others are out there to find if you're willing to do a little research.
 
Look for companies with solid management operating in good locations like the Marcellus shale in Pennsylvania, the Piceance Basin in Colorado, and the Eagle Ford shale in Texas. Make sure they have a couple years of double-digit reserve growth behind them.
 
Thanks to low gas prices, we can buy these companies cheap. The growth will deliver us healthy, triple-digit gains. And when natural gas prices begin to rise, they'll likely soar in value.
 
If you have the patience, you will see 300%-plus gains in this sector over the next five years.
 
Good investing,
 
Matt Badiali




Further Reading:

As Growth Stock Wire readers know, you can make a fortune in commodities by investing when things go from "bad to less bad." In September, Matt showed you three companies that were "beaten down" with the potential to pop if natural gas just got a little "less bad."
 
If you had followed his advice, you would already be up double digits on two of his three recommendations in less than two months. There's likely more to come. Get the full story here: How to Buy the Cheapest Commodity in the World.

In The Daily Crux
Market Notes
Euro plummets to eight-week low... debt "contagion" is spreading from Ireland to Portugal.
 
Gold prices rise 3% over the past week despite U.S. dollar strength.
 
Indian auto giant Tata Motors hits all-time high… up 105% this year.
 
Earnings today... Deere (farm machinery), Tiffany (diamonds).
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1198.35 +1.5% +8.4%
Oil 36.08 +3.2% -6.5%
Gold 134.18 -0.2% +17.0%
Silver 26.94 +0.3% +47.6%
US-Dollar 79.68 +1.3% +6.1%
Euro 1.33 -0.3% -10.9%
Volatility 19.56 -5.2% -4.5%
Gold Stocks 548.98 +0.0% +14.7%
10-Year Yield 2.91 +5.4% -12.4%

World ETFs
Symbol Price
Change
52-Wk
USA 120.20 +1.5% +8.3%
Canada 29.62 +2.0% +13.8%
Russia 20.69 +2.6% +8.8%
India 36.32 +1.4% +18.8%
Israel 16.50 +1.0% +11.1%
Japan 10.44 +1.8% +12.4%
Singapore 13.50 +1.9% +17.3%
Taiwan 14.05 +1.2% +12.8%
S. Korea 55.41 +3.6% +20.0%
S. Africa 68.90 +1.7% +21.9%
China 44.20 +1.7% -1.8%
Lat.America 52.31 +2.5% +9.3%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 130.17 +1.9% +8.8%
Big Pharma 63.95 +0.8% -2.5%
Internet 72.84 +3.5% +27.1%
Semis 15.63 +3.4% +30.5%
Utilities 31.07 +0.6% +4.7%
Defense 18.15 +2.4% +8.7%
Nanotech 9.97 +2.2% +2.2%
Alt. Energy 9.97 +2.4% -1.0%
Water 18.12 +2.3% +10.4%
Insurance 15.84 +1.3% +17.0%
Biotech 20.49 +2.1% +25.8%
Retail 19.47 +1.7% +27.8%
Software 24.19 +2.0% +21.9%
Big Tech 53.12 +2.0% +20.8%
Construction 12.46 +1.6% +8.2%
Media 13.22 +1.8% +21.1%
Consumer Svcs 66.37 +1.9% +22.3%
Financials 53.19 +1.6% +2.0%
Health Care 63.81 +0.9% +1.5%
Industrials 61.42 +2.1% +16.9%
Basic Mat 71.19 +1.9% +20.4%
Real Estate 54.49 +1.9% +27.0%
Transportation 88.87 +2.8% +25.4%
Telecom 22.20 +1.1% +18.1%