The Marcellus Shale continued to attract capital from the exploration and production industry in 2011, despite the industry shift towards the development of crude oil plays. Here's a look at three small capitalization companies that were active in this play in 2011 and plan to continue working here next year.
Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Small-Cap Players
Magnum Hunter Resources (NYSE:MHR) has approximately 58,000 net acres of Marcellus Shale exposure spread across the Appalachian Basin. The company has assembled this position over the last few years through various acquisitions, and recently announced a joint venture with Stone Energy (NYSE:SGY) on a small portion of its Marcellus Shale leasehold. (For related reading, see What Determines Oil Prices?)

Magnum Hunter Resources favors the Marcellus Shale over other areas, because of its close proximity to major population centers in the United States. The company also likes the play because it has one of the lowest breakeven price levels in the onshore United States.

Magnum Hunter Resources has put 10 gross Marcellus Shale wells onto production and estimates that it has 306 gross drilling locations into this formation. In 2012, Magnum Hunter Resources plans to put 25% of its $200 million capital budget towards the development of the Marcellus Shale. The company will spend an additional 25% on infrastructure to help service this area.

Rex Energy (NYSE:REXX) is active in the Marcellus Shale on both an operated and non operated basis. In Butler County, Pennsylvania, Rex Energy operates a 44,500 net acre position in a joint venture with Sumitomo Corporation. The company also has a 3,000 acre operated position outside of the joint venture.

Rex Energy is building additional infrastructure to process and transport increased production from Butler County. The company expects to open a new cryogenic facility with capacity of 50 million cubic feet per day in May 2012.

Rex Energy is also involved on a non-operated basis in a joint venture with Williams (NYSE:WMB) on 43,000 gross acres in three other counties in Pennsylvania. Sumitomo Corporation also has a small interest in this joint venture.

Rex Energy plans to continue this development in 2012 and has announced a preliminary capital budget between $175 million and $190 million. This level of spending is expected to generate production growth between 70 and 80% for the company. (For related reading, see Which Is A Better Measure For Capital Budgeting, IRR or NPV?)

Gastar Exploration (NYSE:GST) has approximately 74,000 net acres with Marcellus Shale exposure with the acreage spread across Pennsylvania and West Virginia.

The company entered into a joint venture with Atinum Partners Co., Ltd., a South Korean company, to help fund development of a portion of this acreage. The agreement calls for the joint venture to drill 12 horizontal wells in 2011 and 24 horizontal wells in both 2012 and 2013.

The Bottom Line
The Marcellus Shale has been one of the exceptions to the industry flight away from natural gas development and investors should expect to see further investment here in 2012. Investors that like to dabble in small cap stocks should examine these three oil and gas operators. (For related reading, see An Introduction To Small Cap Stocks.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

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

Related Articles
  1. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  2. Stock Analysis

    The 5 Best Buy-and-Hold Energy Stocks

    Understand why energy companies' stock are volatile when oil prices are volatile. Learn about the top five energy companies to buy and hold.
  3. Investing

    Have Commodities Bottomed?

    Commodity prices have been heading lower for more than four years, being the worst performing asset class of 2015 with more losses in cyclical commodities.
  4. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  5. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  6. Investing

    Oil: Why Not to Put Faith in Forecasts

    West Texas Intermediate oil futures have recently made pronounced movements. What do they bode for the world market?
  7. Investing

    The Quinoa Quandary for Bolivian Farmers

    Growing global demand for quinoa has impacted Bolivian farmers' way of life. Should the American consumer be wary of buying this product?
  8. Markets

    How Energy’s Debt Bubble Affects Your Portfolio

    Depressed crude oil prices are here to stay for the foreseeable future. Here's how it will affect an oil industry riddled with unsustainable debt.
  9. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  10. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!