3 Oil Stocks With the Potential to Double…or More

Junior energy companies could be quite the bargain if oil recovers. Here’s why I’m particularly interested in Athabasca Oil Corp (TSX:ATH), Gran Tierra Energy Inc. (TSX:GTE)(NYSE:GTE) and Bellatrix Exploration Inc. (TSX:BXE)(NYSE:BXE).

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The Motley Fool

It’s the million dollar question: When exactly will oil recover?

The fact is, nobody knows. I don’t know where oil will be next week, next month, or next year. I don’t know what direction the next 10%, 20%, or 50% move will be.

Investing in energy today isn’t easy. On the contrary; it’s actually pretty hard. Not only do investors have to worry about finding a company that has good long-term potential and that’s trading at a decent price, but they also have to worry about finding companies with the balance sheet strength to make it through the crisis.

Fortunately, there are a few choices out there. Here are three companies that I think have the financial flexibility to endure the storm and have great potential to grow operations. Put those two things together, and investors could easily be looking at returns of 100%, or even more.

Athabasca Oil 

Athabasca Oil Corp (TSX:ATH) is sitting on some fantastic assets. It’s just a matter of getting them into production.

The company has a market cap of just $865 million, but proved and probable reserves of approximately one billion barrels at its Hangingstone thermal project in the oil sands. Hangingstone has the potential for 80,000 barrels of crude daily, and there are long-term plans for two more similar projects on two other pieces of oil sands property.

There’s also the company’s conventional assets, mostly concentrated in the Motney and Duvernay fields, which are economical at between $50-60 per barrel. Between the two areas, Athabasca owns more than 200,000 acres and estimates daily production to exceed 50,000 barrels by 2019.

The company is also sitting on $579 million in cash and a promised payment of $584 million from a subsidiary of PetroChina. Its long-term debt is $786 million with $550 million of it due in 2017. In short, this company isn’t running out of cash anytime soon.

Gran Tierra

Athabasca Oil has a solid balance sheet, but it has nothing on Gran Tierra Energy Inc. (TSX:GTE)(NYSE:GTE), which has US$338 million in cash and not a nickel of debt.

The majority of the company’s production comes from Colombia at a cost of approximately US$40 per barrel. It also has the advantage of getting paid based on Brent prices, which are approximately 10% higher than WTI. Labour costs are considerably lower in South America as well, and the decline in the Colombian peso against the U.S. dollar helps.

Gran Tierra isn’t without issues. The company was bullish on its Peruvian assets, but recent test drilling produced pretty disappointing results that led to a substantial write-off. Shortly after, the company sacked its CEO. But with about half the market cap being made up of cash, investors are well compensated for taking these risks. Plus, the company trades at about 60% of book value.

Bellatrix

Bellatrix Exploration Ltd. (TSX:BXE)(NYSE:BXE) is trading at less than half of book value, has a reasonable debt load, and delivered terrific results in 2014 with net profit coming in at $0.88 per share. That will obviously take a hit in 2015, but it just goes to show what the company is capable of earning during the good times. Shares currently trade hands at $3.05 each.

Perhaps the biggest reason to be bullish on Bellatrix came in February, when it was disclosed that legendary value investor Seth Klarman had bought 11% of the company and wouldn’t rule out buying more. Shares popped nearly 20% in the news, but have since given up all that ground. In fact, investors who buy now are getting shares at a lower level than Klarman did.

All these companies need one important variable before they can even think of going higher, and that’s a recovery in crude. If you’re a long-term believer in the price of oil heading back to the $80-100 level, these three producers are the way to invest in it. And if oil stagnates here, they all have the balance sheet strength to survive.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Nelson Smith has no position in any stocks mentioned.

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