Are you an investor who can't decide whether or not to play the exploration and production companies or contract drillers when an eventual rebound in the energy sector occurs? Then take a look at Unit Corp (NYSE:UNT), an interesting hybrid energy company comprised of an exploration and production division, a contract drilling operation and a small pipeline system. (For more on how to take advantage of this market without having to open a futures account, read A Guide to Investing in Oil Markets.)

Unit Petroleum
Unit had 515 Bcfe (billion cubic feet equivalent) of proved reserves at the end of 2007. The reserves are split amongst several high profile areas in North America, including the Permian Basin in Texas and New Mexico, the Arkoma Basin in Arkansas and the Anadarko Basin in Oklahoma. The company also has other properties in North Louisiana and on the Gulf Coast.

Unit was a slow growth company with relatively flat production growth until 2003. Since 2004, the company has increased production from its reserve base every year. While some of this growth was due to the acquisition of PetroCorp in early 2004, Unit should be given credit for kick starting its business into a growth phase.

The company has replaced its reserves at an average rate of 204% since 1995. In 2007, the company replaced 171% of its reserves. Unit spent $438 million in 2008 to explore and develop its properties. Its largest inventory of wells for drilling was in the Anadarko Basin.

The company is setting up for future growth by accumulating acreage in unconventional shale plays across North America. These include the Marcellus Shale in Pennsylvania, the Haynesville Shale in Louisiana and the Bakken Shale in North Dakota. The combined net acreage in these three plays totals 75,000.

Unit Drilling Company
The company's contract drilling fleet consisted of 25 rigs in 1997. Seven acquisitions brought Unit's drilling fleet to the present total of 131 rigs. Rig utilization reached into the mid-90% range in 2006, but has since slipped to 76% as of September 30, 2008. The company expects even lower rig utilization numbers for the end of 2008, as the downturn in energy continued to work its way through the business. (To learn more about how to evaluate energy companies, read Oil and Gas Industry Primer.)

Questar (NYSE:STR) is the company's largest customer and represented 13% of total revenues for the drilling division in 2007.

Superior Pipeline
The company's smallest division, Superior Pipeline consists of 755 miles of pipeline, eight natural gas processing plants and three natural gas treatment plants.

Financials & Features
Unit Corp. is in fairly solid financial shape, with long-term debt of $148 million and an undrawn credit line of $127 million. Its debt-to-total capitalization ratio was 8% at September 30, 2008.

Unit Corp. stands out from similar companies because it is fairly unusual for an exploration and production company to own its own drilling fleet. Chesapeake (NYSE:CHK) owns a fleet of rigs, but usually will sell the rig after it is built and lease it back. Likewise, it is also unusual for a contract driller to own its own exploration properties. Nabors (NYSE:NBR), for exampled, entered into a joint venture with a private equity firm in 2006 to begin oil and gas exploration.

Bottom Line
Unit Petroleum is an interesting hybrid energy company operating in three different energy subsectors. Investors could use Unit as a vehicle to play an eventual rebound in the sector.

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