Oil and gas prices have soared in the past few months as people have begun to move around more and demand for fuel has risen. Supplies of oil and gas, meanwhile, have remained low as most energy companies focus on restoring their balance sheets instead of drilling more.

Heading into earnings season, some investors have gotten more interested in big energy names like Exxon Mobil (ticker: XOM) and Chevron (CVX) or in energy exchange-traded funds. But small-caps also show promise, and can sometimes be bargains because fewer investors are paying attention to them.

To find small-caps with the potential to grow, we screened for companies with market caps below $5 billion that are expected to grow their free cash flow in the coming quarter more than peers. And we looked for companies with healthy balance sheets, eliminating those with high leverage or those whose operating earnings are not at least twice as large as their quarterly interest payments.

Four companies are expected to show particularly large gains in cash flow in their coming quarterly reports, and have debt loads that appear manageable.

Little But Powerful

These small-cap energy stocks are likely to boost their free cash flow

Bonanza Creek Energy (BCEI) is a Denver-based oil and gas producer that recently agreed to merge with Extraction Oil & Gas (XOG), another Colorado producer, in an all-stock transaction. The companies say they will be the largest pure-play energy producer in Colorado’s Denver-Julesburg Basin, and will be increasing their dividend. The new company will be called Civitas and, the companies say, it will have net-zero emissions in its operations (that’s different from Scope 3 emissions, which are the emissions produced by the products they create).

Rex American Resources (REX) produces ethanol, distillers’ grains, and non-food-grade corn oil — energy sources that could become even more important as the U.S. shifts to more low-emissions fuels. The company is also getting into carbon capture and sequestration and sees “a possibility of being a large player in that industry.” 

CNX Resources (CNX) was formerly part of Consol Energy, a gas and coal producer. When that company split in 2017, CNX took over the natural gas side. It is benefiting as demand rises for gas around the world and is up 41% this year.

Helmerich & Payne (HP) is an oil services company based in Tulsa, Okla. Oil services companies have struggled as producers have cut back on drilling. But there’s some evidence of a rebound in production in the US. as producers start to take advantage of higher oil and gas prices. That’s helping boost pricing for firms like Helmerich. “Further, we remain optimistic that current oil prices will translate into higher 2022 exploration and production drilling budgets and activity in the U.S. land market,” CEO John Lindsay said in July.

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