After popping to an intra-day high near $5/thousand cubic feet (tcf) in early June, natural gas prices have dropped back to around $4/tcf and hovered there for about six weeks. It’s not likely that the coming heating season is going to improve the price much, mainly due to the glut of natural gas available now from horizontal drilling and hydraulic fracturing technology.

In our continuing hunt for value stocks, we looked at the largest producers of natural gas in the US and screened for the seven with market caps larger than $20 billion. These are Exxon Mobil Corp. (NYSE: XOM), BP plc (NYSE: BP), ConocoPhillips Corp. (NYSE: COP), Anadarko Petroleum Corp. (NYSE: APC, Devon Energy Corp. (NYSE: DVN), EOG Resources Inc. (NYSE: EOG), and Chesapeake Energy Corp. (NYSE: CHK). Production and reserves figures are based on information from the US Energy Information Administration and reflects 2009 totals. The agency has not yet released data for 2010.

Many of these companies are primarily crude oil producers, but all produce some amount of liquids and it is that liquids production that is keeping profits up at companies like EOG and Chesapeake which are primarily natural gas producers. The seven companies are listed below in market cap order.

Looking for value can be very tricky, particularly in commodity-related stocks and particularly when a sector is in a state of flux.  As we are still preparing for herder times, 24/7 Wall St. is searching for individual companies where their valuation already reflects much of the uncertainty in the markets even if the broader market cannot factor in forward events.  Having the term “value” does not imply immediate gains, but value investors invest ahead of, during, and after recessions.  They even invest when there are no obvious catalysts.

Exxon Mobil Corp. (NYSE: XOM) moved to the top of the list of natural gas producers with its purchase of XTO Energy. The company’s reserves total about 24 trillion cubic feet (Tcf) of natural gas. Combined production in 2009 totaled about 1.5Tcf. Exxon shares recently traded at $71.84 and its market cap is $349 billion. The stock’s 52-week trading range is $58.95-$87.16. The current value is trading at a price-to-book ratio of about 2.25 to 1. Its forward price earnings multiple is 8.05. The company currently pays a dividend yield of 2.62% to investors. Thomson Reuters has a consensus price target of $92.38, implying roughly 29% upside to the most recent price.

BP plc (NYSE: BP) reserves now total about 13.5Tcf and the company produced about 1Tcf in 2009. The company is still recovering from its Gulf of Mexico disaster in April 2010, and its 3 billion barrels of crude reserves are the largest among the seven companies in this list. BP’s shares recently traded at $36.43 and its market cap is $115 billion. The stock’s 52-week trading range is $35.15-$48.16. The current value is trading at a price-to-book ratio of about 1.07 to 1. Its forward price earnings multiple is 5.30. The company currently pays a dividend yield of 4.61% to investors. Thomson Reuters has a consensus price target of $55.76, implying roughly 53% upside to the most recent price.

ConocoPhillips Corp. (NYSE: COP) boasts natural gas reserves of 10.7Tcf and the company produced about 1.2Tcf of gas in 2009. The company’s share price rose more than 40% in the past 12 months, but recent drops in crude prices have pared that gain to around 15% currently. Conoco’s shares recently traded at $64.24 and its market cap is $88 billion. The stock’s 52-week trading range is $52.81-$80.35. The current value is trading at a price-to-book ratio of about 1.29 to 1. Its forward price earnings multiple is 7.30. The company currently pays a dividend yield of 4.11% to investors. Thomson Reuters has a consensus price target of $82.11, implying roughly 28% upside to the most recent price.

Anadarko Petroleum Corp. (NYSE: APC) reserves total 7.7Tcf and the company produced more than 1Tcf of natural gas in 2009. Like the other companies, on this list, liquids production is the key to the company’s profits. Anadarko’s shares recently traded at $70.31 and its market cap is $35 billion. The stock’s 52-week trading range is $51.60-$85.29. The current value is trading at a price-to-book ratio of about 1.63 to 1. Its forward price earnings multiple is 17.15. The company currently pays a dividend yield of 0.51% to investors. Thomson Reuters has a consensus price target of $95.37, implying roughly 36% upside to the most recent price.

Devon Energy Corp. (NYSE: DVN) holds about 8.5Tcf of natural gas reserves and produced about 970 billion cubic feet (Bcf) in 2009. The company’s main strength is its low-risk, onshore assets in the Barnett shale play and other gas and oil fields in Texas. Devon’s shares recently traded at $63.78 and its market cap is about $27 billion. The stock’s 52-week trading range is $61.02-$93.36. The current value is trading at a price-to-book ratio of about 1.24 to 1. Its forward price earnings multiple is 8.49. The company currently pays a dividend yield of 1.07% to investors. Thomson Reuters has a consensus price target of $101.06, implying roughly 58% upside to the most recent price.

EOG Resources Inc. (NYSE: EOG) holds about 6.4Tcf of natural gas reserves and produced about 577 Bcf in 2009. The company is touting a new shale play in the Permian Basin of Texas that may hold up to 2.1 billion barrels of shale oil. EOG’s shares recently traded at $86.11 and its market cap is about $23 billion. The stock’s 52-week trading range is $83.92-$121.06. The current value is trading at a price-to-book ratio of about 1.91 to 1. Its forward price earnings multiple is 16.10. The company currently pays a dividend yield of 0.74% to investors. Thomson Reuters has a consensus price target of $120.79, implying roughly 40% upside to the most recent price.

Chesapeake Energy Corp. (NYSE: CHK) holds reserves of about 13.5Tcf and in 2009 produced more than 1.2Tcf of natural gas. The company has a large footprint in the Marcellus shale play and, like Devon, has been producing in the Barnett shale for years. Chesapeake’s shares recently traded at $30.76 and its market cap is about $20 billion. The stock’s 52-week trading range is $20.50-$35.76. The current value is trading at a price-to-book ratio of about 1.31 to 1. Its forward price earnings multiple is 10.50. The company currently pays a dividend yield of 1.14% to investors. Thomson Reuters has a consensus price target of $40.00, implying roughly 30% upside to the most recent price.

Among these companies, the highest dividend yield is paid by BP, followed by Conoco. The largest reserves are held by Exxon, BP, and Chesapeake. The highest implied upsides belong to BP and Devon, and BP also has the lowest P/E multiple, at 5.30.  By nearly any measure, BP appears to be the best value among these stocks, and when all the measures are combined, it stands out as the best potential value. Barring any remaining surprises on liability for the Gulf disaster or some blunder by management, BP still gets the call for value.

Again, the market seem unable to factor in macroeconomic and geopolitical event risks.  George Soros noted, “Contrary to the tenets of market fundamentalism, financial markets do not tend toward equilibrium; they are crisis prone.”

Warren Buffett was quoted long ago saying, “Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now.”  We don’t go along with the Buffett model of forever any longer, but you get the idea.

One investment manager said at The Value Investing Congress that she starts her screens for finding value stocks as being those stocks that have been hitting 52-week lows for a while…

Paul Ausick

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