2 Small Cap Oil and Nat Gas Plays

The instability in oil and natural gas markets remains in flux due to the Iran conflict, and more specifically, the flow of tankers through the Strait of Hormuz.

Independent of the short-term variability, there is evidence that the recovery or reduction in commodities prices may take longer than expected due to structural damage inflicted against key processing facilities as well as possible longer-term disruption in the supply chain rhythm. 

If you fall in the camp that commodity prices are likely to remain elevated longer-term, then these 2 small cap oil and natural gas plays are worth investigating.

SandRidge Energy, Inc. (SD) is an independent oil and natural gas company focused on the acquisition, development and production of hydrocarbon resources, primarily within the U.S. Mid-Continent region, namely Oklahoma, Kansas, and Texas.

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SandRidge Energy, Inc. (SD) operates at lower cost extraction rates with the majority of wells profitable at WTI prices of $40 and nat gas prices of $2.00 (HH).
 
Q4 adj. EBITDA improved nearly 6% YOY to $25.5 m, with new drilling and well completion planned for 2026. The balance sheet is strong with $112 m in cash and no debt, and the stock trades near tangible book value of $14/share. Zacks currently has an Outperform rating.
 
Koil Energy Services, Inc. (KLNG), is involved in the service side of the business. Importantly, the company is involved in international exploration, primarily Brazil and West Africa, which may appeal to investors who believe new geographies will be explored to de-risk from the Middle East.

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Koil Energy Services, Inc. (KLNG) provides a broad range of services, including subsea engineering and project management, spooling operations, testing and commissioning, storage management, and equipment refurbishment and intervention services. Its engineering capabilities span the design and installation of subsea systems such as umbilicals, risers, flowlines, and jumpers.

While Q4 revenue grew 22% YOY to $7.3 m, EPS declined YOY to $.03 from $.04 to lower Gross Margin stemming from a shift in product mix. Zacks currently has a Neutral rating on the stock.

The stock is currently trading at 1.01X trailing 12-month EV/sales value, which compares to 8.07X for the Zacks sub-industry, 1.86X for the Zacks sector and 5.36X for the S&P 500 index.
Over the past year, the stock has traded as high as 1.57X and as low as 0.64X, with a one-year median of 1.16X. 

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This article originally published on Zacks Investment Research (zacks.com).

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