A Tech Energy Play

 | Aug 15, 2012 | 7:22 AM EDT
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Sometimes I wonder if there are hundreds of stocks like Energy XXI (EXXI), which I had on "Mad Money" last night.

You have probably never heard of it unless you watch the show. It has a huge number of fields in the Gulf of Mexico that it bought as castoffs, making it the third-largest producer in the shelf. It operates seven of the 11 largest oil fields in an area that everyone knows is nothing but net for oil companies.

It's a seven-year-old company with 116 million barrels equivalent of proven reserves.

It's got proven growth. It successfully replaced all of last year's production and it grew proved reserves.

And it sells at 3x next year's EBITDA.

Three times!

Not only that, but it has tons of prospects it's exploring now and it is using horizontal drilling to go back over the other properties to get more out of them. Its balance sheet is terrific and it is throwing off an immense amount of cash.

So why doesn't it sell for more?

I think it's because its Gulf of Mexico properties are older wells, long since minded by ExxonMobil (XOM). In fact, the wells were pretty much left because they have already produced 1.6 billion barrels of oil before they were sold.

I think it is that figure more than anything else that makes Energy XXI a passed-over company. Why in heck would you want to own an oil field after the best operator in the world left it for dead?

The answer, of course, is that Energy XXI is a technology play. It can go into the same old fields that have been abandoned and get out more oil than anyone ever thought possible just a few years ago.

It's not as good as going into virgin Bakken or Eagleford, but it's pretty clear that there was A LOT More RECOVERABLE oil there than Exxon knew about when it sold these wells, which, by that point, couldn't move the needle anyway.

So, it might lack the upside of a brand-spanking-new company hitting paydirt in some unexplored part of the United States. But with its technology, its assets, its balance sheet and its prospects, Energy XXI is just one more stock that nobody cares about that sells for a lot less than it is worth.

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