December 28th, 2012 
Category: 
The year is pretty much over, another ‘risk off’ year that left the commodity sector in pain. However, 2012 still had its winners which returned impressive gains for those that identified the opportunity, took the risk and held on. In 2012, 6 out of 10 top performing oil and gas stocks are junior E&P companies.
The table below shows the best and worst oil and gas stocks in 2012 with a current price above $1 for stocks that are still listed. Nexen is the only senior producer to be included and only because it was taken over by CNOOC. The stock has not delisted yet so it made the list.
Prices as of 11pm EST
Among the winning stocks there are 3 small oilfield services companies that made it. I’ve never heard of these stocks so I went on to investigate why they got rewarded in an environment where commodity price volatility and widening differentials generally hurt the sector. Let’s take a closer look at these OFS stocks.
Macro Enterprises specializes in the construction and maintenance of small-to mid-inch pipelines, facilities and gathering systems. No surprise this stock was a top performer, unless spending in Western Canada drops to $0, there will always be demand for their services. Looking ahead to all the rosy forecasts of increasing Canadian oil and natural gas production demand is only expected to grow. A nice defensive stock minus a lot of risk related to commodity pricing and drilling. Too bad it doesn’t pay a dividend.
LoneStar West provides Hydro-Excavation services. That’s using pressurized water to agitate the earth and a powerful vacuum to remove the soil and debris. The process exposes underground utilities and pipelines (diversified customer base). Not a very liquid stock, seems to have made its move in the second half of the year.
High Arctic Energy Services operates 3 business segments: Equipment Rentals, Nitrogen Services and Snubbing Services (inserting drillpipe into the wellbore). This stock tops it off with a dividend of $0.12 per year – or 5.5% yield!
The 6 Junior winners this year are divided half/half between domestic and international E&Ps. Manitok Energy, DeeThree Exploration and DonnyCreek Energy are all Canadian based. The interesting one among these 3 is DonnyCreek as it is natural gas weighted company but in reality a play on Condensate. These 3 companies prove that even with all the headache the oil patch is going through, there’s still money to be made.
The 3 International focused stocks are Mart Resources, Africa Oil and WesterZagros. Mart is in Nigeria, Africa Oil in Eastern Africa and WestZargos in Kurdistan. Africa Oil made significant oil discovery in Kenya whereas Western Zargos made theirs in Northern Iraq. Mart Resources is sitting on a giant oil field in Nigeria and I expect to see the stock make this list AGAIN next year.
On the losing team there are 2 stocks that were once so promising, Poseidon Concepts and Gasfrac Energy Services. These 2 have caused massive losses to investors this year. While Gasfrac’s technology failed to gain traction, no one saw the coming destruction of Poseidon. How, what, where and why? No one has any answers on how it happened with Poseidon including management it seems. According to their last news release, they just started to investigate…(Do I hear another lawsuit is on the way?)
Then there’s Pengrowth Energy, so glad I sold it when they acquired NAL Energy early in the year. On the other hand there’s my Xtreme Drilling and Coil Services which provided me with ‘extreme’ losses – paper losses that is. The investment scenario I invested upon didn’t quite unravel as I expected. XDC is finally entering its free cash flow generation mode in 2013 and the stock has recovered from it’s all time low of $1 and should continue upwards in my opinion as quarterly results show improvement in the bottom line.
Niko, HRT and Canacol are international companies and the remaining stocks LPR, SRX and FEL are natural gas weighted. They got decimated following the record low natural gas price environment we went through this year. Obviously, this list does not include stocks currently trading below $1 that experienced severe losses this year such as our Swan Hills players SecondWave Petroleum and Arcan Resources. Bowood Energy (now LGX Oil and Gas) which was once one of the best stocks for pure exposure to the emerging Alberta Bakken oil play turned out to be pure exposure to massive losses. Between PSN, GFS and LGX one has to be very nimble when investing in one trick ponies no matter how exciting the story sounds.
Destruction of shareholder money!
There’s a couple of obvious lessons one should be reminded of from looking at this list: due to the volatility and cyclical nature of this sector it is best to cut losses early and take profits often. These lessons apply perfectly on my speculative portfolio, for example my XDC position was very profitable at some point yet I wanted to see my investment scenario through. For 2013 with Brent above $100 a barrel, international producers seem like the place to be, no discounts or pipeline constraints to worry about. Except it will be as much challenging as picking domestic stocks.
This should be the last post for 2012, as such Happy New Year to all! Wishing you and your families a lot of health and prosperity. Money is worth nothing if you’re not healthy so a lot of health first!
For OGA users, there will be an update coming soon as 2 new features are deployed. Production estimates for 2013 are being rolled out for stocks in the coverage universe.
If you’re interested in running your own stock screener for oil and gas stocks, you can sign up for free on oilandgas-analysis.com.
[...] Best and Worst Oil & Gas Stocks in 2012 [...]
Thanks for the list. Nice to see I own 4 in the top group (DTX/MMT being my big winners) and nothing in the bad group although I still have some stinkers unfortunately as a lot of O&G companies (good ones too) got punished in 2012.
I recall you bought PRY a few months ago as I’ve been watching it too and I’m considering a position. Just wondering what your thought are as it’s current SP is just over it’s 52 week low?
I would have thought with the water flooding program underway and also the non merger with Spartan (free 12 mill was it?) that we’d at least see some uptick in SP??? Just tax loss selling perhaps from those who bought it at $3 plus,etc.???
Your thoughts?
Hey WC,
I believe the market is waiting on guidance from PRY. Where is the company at and where is it going? that’s particularly true after the deal with STO fell out.
Operationally, AFAIK I believe the exit numbers were hit and according to management the waterflood program could contribute up to 1,500 bopd by the end of 2013.
The next operational update will trigger a meaningful move in the stock, either up or down. I am still holding my shares and expect the SP will recover.
Cheers,
Mich
The key to success is to avoid plays that can get crushed – rubbish like PSN was easy to spot – a lot of shorts could see it coming a mile away – as should have anyone with half a brain in their head. But thankfully, this sector is replete with fools – otherwise it wouldn’t be so ridiculously easy to make money year after year…
Iona will be a top performer in 2013. Just my little New Year’s contribution
Ron,
Excellent point, plays that can get crushed typically exhibit the same symptoms: blue sky potential on an emerging technology or play. (GFS, ARN, SCS, PSN etc)
I like your INA pick but I’d vote for MMT in 2013. I believe it will make the top performers list again this year.
Cheers,
Mich
Hey Mich,
Thanks for your thoughts on PRY.
I like INA as well but I think you nailed it with MMT making the list again next year.
A a couple month setback recently with the pipeline down recently but it’s runniong again and hopefully news on UMU#10 and also the 2nd pipeline as well. It doesn’t hurt we’re earning a divy while we wait either.
Yes, geo risk for sure operating in Nigeria but with it’s not like even O&G companies in safe countries are immune to outside the company issues such as the Western Canada discount to WTI, the bakken and Canadian pipeline glut or the taxation issues in the North Sea last year.
So MMT with a lot of potential going forward and paying a divy works for me. Just loaded up my TFSA this morning with more MMT and while risky I’m willing to take that risk. Time will tell if it was smart or foolish.
WC
You’re welcome WC,
PRY update should be released in about 2 weeks.
It’s ironic how, thanks to discounts, pipeline constraints and land locked oil in North America, I suddenly don’t feel as bad having money in Nigeria!
I think you will make out fine with Mart, the biggest catalyst will be the 2nd pipeline announcement, it’s uphill from there!
Cheers,
Mich
Good to know about the update from PRY in a few weeks as I might be a buyer with my MMT divies which come out next week!!!
Good Luck to you with all your investments in 2013!!!
WC
Thanks WC,
All the best with your investments in 2013!
Nexen was good to me – cashed out at 62% gain.
Made ~75% off of Niko’s big drop and bounce back. In and out in < 3 weeks on that one.
Bought PSN, PGF and Gasfrac low – hoping to see some upside there.
Also picked up C&C Energia – taken over with a 46% gain.
Having said all that, my returns overall were pretty flat for 2012, despite the (hopefully) good buys/takeovers etc etc. Here's hoping 2013 is better for everyone.
You had to be diversified in 2012, our sector was out of favor and still is!
Nice gains on Niko and Nexen
PSN & GFS, that’s some high speculative risk but if you have the nerves for em, why not. Still sitting on my SDY for the equivalent of PSN but with a more diversified line of business.
PGF is a senior, it’ll come back one day, the safest of your bets imo.
I expect the second half of 2013 to be better so I echo your hope for a better year for everyone
Well, so far I’m up 12% as of today on GFS so maybe if they get a new CEO the tide will turn for them. I like the technology so am hopeful. And on PSN, I’m putting my trust (hopefully not misplaced) in Scott Dawson. He has a pretty good rep in this town. I’ll check out SDY, but another reason for the PSN (besides that I’m a bottom fisher and think that the market over-reacted big time) was their focus in the US. I’d also like to pick up some of PSN’s competitors down in the US. I think there’s probably big upside in natgas service companies down there but maybe not quite yet.
I’m also checking out other Colombian based companies. I owned C&C and still own PMG but would like to pick up another one to replace C&C.
TCPL (where my day job is) announced the Prince Rupert pipeline this week – we’re all just way ahead of the game I guess.
Any thoughts on a Legacy takeover this year? I’m seeing some good movement in that one lately. Unfortunately, my 12 y.o. owns it and not me. LOL
GFS may have better chances than PSN. Bottom fishing pays big sometimes, in the case of PSN, I read NAV figures with a $1 handle. Tough to say until we get the next quarterly results.
SDY has footprint in the US but the fluid handling business is still early in the game. At least the divvy is nice and no way in danger of getting PSNed:)
Look into PXT for a replacement of C&C, it’s another quality Colombian producer.
The Prince Rupert pipeline is some excellent news for TRP, taking away 2BCF/d of gas off market will be great! Fingers crossed you guys get approval for Keystone XL
The questions to ask is: is the rally in LEG seasonal? or is there something else going on behind the scene? LEG is a quality company, but it’s been ignored like many others. Could they be getting ready to follow the herd into the wonderful world of paying a dividend? time will tell…
Cheers,
[...] @ Beating The Index runs down the Best and Worst Oil and Gas Stocks of 2012. Last year was annus horribilis for commodities, and O&G was no exception. Let’s hope [...]
OK, so I am now up 57% on GFS (13.98% today) – have you heard any news? I’ve been looking and there’s nada on whether it’s a takeover or just freaky momentum. This one might be a double bagger for me…
Thanks for the tips, I’m in buy mode right now.
I’ve noticed GFS in the top 5 movers list, always reminds me of your position. Congrats on an excellent trade Jacq!