Unit Corp (UNT)

[dan_s]

I have updated my forecast model and posted it under the Sweet 16 Tab.

UNT is on my list of companies that really needs to get out more to promote the company. The stock is trading at less than 4X cash flow per share, they have a rock solid balance sheet, most of this year's oil production is hedged at $97.94/bbl and half of this year's natural gas production is hedged at $3.65/mcf. 30% of their 2014 natural gas production is hedged at $4.24/mcf and I am using $3.50/mcf in my 2014 forecast model.

The market still considers Unit a drilling contractor, but that division (which is profitable) only generates 35% of the company's revenues. This is an E&P company that has a drilling division and a small midstream division. BTW all three are profitable.

Due to the dip in NG prices at the end of 2012, the company had to take a big non-cash charge for impairment of their full-cost pool in Q4. That hit significantly reduced this year's DD&A rate, so reported earnings are going to be much higher this year and year-over-year EPS comparisons are going to look great for the next three quarters. Plus, if NG prices hold up, they will get to add those same gas reserves back to their proven reserves and the DD&A rate for 2014 will be even lower.

If you believe (as I do) that natural gas prices are going to drift higher into year-end, you should take a hard look at UNT. Any increase in the rig utilization rate should draw more attention to this company. Fund managers will like what they find.