Seeking Alpha: Unit Corp. Will Likely Struggle To Get Its Full Due

Diversification can reduce the operating risk of a company, but it comes at a cost. Analysts rarely have the skillset to properly evaluate all of the components, investors will punish a perceived "lack of focus", and the companies themselves are rarely equally good at all of the businesses.

I think that's a relevant risk factor for Unit Corp (NYSE:UNT), as this company has rarely traded at multiples similar to what blended peer comps would suggest as fair. While I think Unit has some interesting oil and gas assets in southwest Oklahoma and southeast Texas, I continue to think the company's suboptimal drilling operation is more of an anchor than an asset and I don't believe the company is likely to have the resources to really maximize its midstream assets. The shares do seem undervalued and would do well if energy prices accelerate again, but investors attracted by the apparent value here need to be prepared for a longer wait.

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Unit Corp. Will Likely Struggle To Get Its Full Due

Seeking Alpha: Have Expectations Exceeded Helmerich & Payne's Capacity To Outperform?

Even the best companies can find that expectations get so high that it's almost impossible not to disappoint the Street. Helmerich & Payne (NYSE:HP) is certainly one of the best companies in the energy services sector, as its AC drive FlexRigs have allowed the company to claim leadership in U.S. onshore contract drilling on the back of the surge in horizontal drilling in unconventional shales. Helmerich & Payne was hardly the only service company to sell off on calendar second quarter earnings but the shares aren't strikingly cheap today, even considering the company's growing international drilling business and its strong record of dividend growth.

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Have Expectations Exceeded Helmerich & Payne's Capacity To Outperform?

Seeking Alpha: Unit Corp. Still Not Getting Its Full Due

About six months ago, I thought that Unit Corp. (UNT) was undervalued by about 20% to 25% as the company's awkward mix of E&P, land drilling, and midstream assets led it to being overlooked. The shares have risen more than 27% since then, with much of that coming on good fourth quarter results and a significant improvement in sentiment for land drillers and service providers. Enthusiasm over land drillers may be getting a little overdone, but Unit still looks too cheap on a sum-of-the-parts basis and offers worthwhile upside from its E&P drilling program.



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Unit Corp. Still Not Getting Its Full Due

Seeking Alpha: Unit Corp Doesn't Seem To Get Full Benefit Of The Doubt

Investors typically like "clean" investment stories where there are not a lot of moving parts or unusual combinations of businesses - this is why there used to be something called a "conglomerate discount", though that has largely gone away over the years. I mention this as the opener for the piece because I believe it's an important part of the investment story around Unit Corp (UNT) - a smallish energy company with operations in exploration and production, land-based drilling, and midstream.

Although Unit Corp has done reasonably well over the years, particularly with respect to growing its reserves and shifting its resource base away from gas and toward liquids, the stock doesn't really reflect the multiples you'd expect from its mix of operations. There are certainly some operational risks tied to the company's E&P activities and the U.S. land drilling market is unlikely to show a real recovery until 2015, but I do believe Unit shareholders have reason to expect at least a little more upside in these shares.

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Unit Corp Doesn't Seem To Get Full Benefit Of The Doubt

Investopedia: Best-Of-Breed Status Keeping Helmerich & Payne Near Fair Value

The past two- and five-year periods haven't been kind to the land drilling industry, but Helmerich & Payne (NYSE:HP) has fared quite a bit better than most. While rivals like Nabors (NYSE:NBR), Patterson-UTI (Nasdaq:PTEN), Precision Drilling (NYSE:PDS), and Pioneer Energy (NYSE:PES) have seen their shares decline from between 30% and 70% over the last two to five years, Helmerich & Payne is close to breakeven.

HP owes its success to a program of focused differentiation – namely, building high-spec rigs that not enable operators to drill the horizontal wells that are increasingly necessary to exploit oil and gas reservoirs, but to do so faster and with fewer drilling days. A significant recent increase in the dividend has demonstrated management's willingness to share success with shareholders, but the quality of this company is never far from the minds of Wall Street. Consequently, the shares don't look like a tremendous bargain today.

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http://www.investopedia.com/stock-analysis/071013/bestofbreed-status-keeping-helmerich-payne-near-fair-value-hp-nbr-pten-pds-pes.aspx

Investopedia: Chesapeake Making The Best Of A Tough Situation

Here's a question for natural gas investors to ponder: How much growth do you really want? Natural gas prices are still low and reserves are a limited asset, so does it really make sense for these companies to cash out a meaningful amount of these assets too cheaply? Certainly, these companies need to fund their operations and establish enough production to hold valuable leases, but production at below-trend prices is a mixed blessing. 


Chesapeake Energy (NYSE:CHK), one of the largest independent natural gas producers, continues to walk that tightrope while remaining very highly leveraged to future rises in natural gas. (For more, see Natural Gas Industry: An Investment Guide.)


Decent Q1 Performance
Chesapeake reported over 6% sequential production growth for the first quarter, with realized prices up about 2%. Within those numbers, the company reported strong growth in its oil and liquids production - up nearly 9% on a sequential basis and up 56% from last year. 



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http://stocks.investopedia.com/stock-analysis/2011/Chesapeake-Making-The-Best-Of-A-Tough-Situation-CHK-PXP-STO-TOT-CEO0504.aspx