Energy investors who are still concerned over a renewed contraction in economic activity, might want to consider companies that have no debt or manageable debt term structures, over the next few years. The ability to refinance debt became a major issue during the previous recession and financial crisis, and led to huge stock price declines, as nervous investors sold out.
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European Crisis
The stock market has rebounded strongly over the last week, as the Europeans seem to have found a temporary solution to the sovereign debt crisis gripping that region. Investors have also found some reassurance in recent economic reports that confirm a sluggish, but growing, economy. (For related reading, see 7 Things You Didn't Know About Sovereign Debt Defaults.)

One conservative company is Unit Corp (NYSE:UNT), which is active in various plays in the Mid Continent area, as well as the Bakken formation in North Dakota. The company has a single $250 million debt issue outstanding, with a maturity in 2021, and has not borrowed against its credit facility. Unit Corp also offers an investor earnings diversification, as the company operates a land rig fleet and a pipeline operation.

QEP Resources (NYSE:QEP) has approximately $1.1 billion in total debt on the company's balance sheet, with the liabilities spread across four separate bond issues. The maturity dates on these liabilities range from 2016 to 2021. The company has also borrowed $510 million on the company's credit facility, which has a capacity of $1.5 billion.

Debt Free
Investors might also want to consider the few energy companies with no debt on the balance sheet. Evolution Petroleum (NYSE:EPM) is a small cap exploration and production company, that is involved with enhanced oil recovery projects in Texas. Evolution Petroleum has no debt obligations to refinance or rollover and seems committed to remaining this way.

GeoResources (Nasdaq:GEOI) also reported no debt on the company's balance sheet as of June 30, 2011. The company issued equity in Jan., 2011 and used part of the net proceeds to pay down $87 million that was borrowed on the company's credit facility.

The Bottom Line
Refinancing problems are not the only issue that can torpedo a public company, but the companies that had too much debt or short term refinancing needs, suffered greatly during the last recession and financial crisis. Investors who believe a repeat of that nightmare is on the way, might sleep better at night by owning companies that don't have concerns in this area. (If you don't know how the recession began, read on to learn more. See The 2007-2008 Financial Crisis In Review.)

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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.



Tickers in this Article: GEOI, EPM, UNT, QEP

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