Source: Chesapeake Energy Media Relations.

Three to five years ago, investing in the American shale boom was pretty easy. You could print out a list of energy companies, pin them to a wall, then throw darts blindfolded, and the companies you landed on would likely trounce the S&P 500. Today, though, it’s not as simple, and investors who want to make good decisions in this space will need to do some more digging.

Here’s the nice part: Understanding an oil and gas producer isn’t that difficult. There are, of course, the financial metrics we all know and love as well as stock valuations, but there are some more specific keys you should consider when looking specifically at independent oil & gas producers. Let’s take a deeper dive into this industry to find out how you can make better basic investing decisions in the independent oil & gas space.

Who are we talking about, here?

Unlike integrated oil and gas companies, independents exclusively produce oil and gas, That means no downstream assets like refiners or retail arms. In some ways, it makes them much easier to understand, because you don’t have to sift through multiple business segments to identify the primary driver of profitability for the company.

The thing is, hundreds of independents are publicly listed on major U.S. exchanges. They can vary in size from having a market capitalization of only a couple million dollars all the way up to ConcoPhillips ( NYSE: COP ). which today is valued close to $100 billion.  Unlike other groups within the energy space like Big Oil and offshore rigs. there are simply too many companies to list them all, or even pick a dozen or so without missing out on some great investing opportunities.

Five key points to consider

In all honesty, there is a bunch of noise that can distract you when trying to identify what is important. So many investors today are worried if companies are in the top shale producing regions, but what good does knowing which shale plays are the best if a company has holdings in a poor part of that formation that barely produces anything? At the same time, there are other companies that don’t even operate in shale that can be just as lucrative investments. If you are looking to buy companies on a truly long-term, buy-and-hold strategy, then you need to focus on other keys that are much more important than geography.

To help filter out the noise, here are five key points you should dig into when you are doing your homework. To mention every company would be a little exhausting, so instead — to give you a little leg up on your research — I will supply three leaders and three laggards for each of the five points below that have a market capitalizations of more than $500 million.

1. Production potential: Go beyond just proved reserves

One of the major misconceptions about the term proved reserves is that many assume its the amount of oil in a reservoir. Actually, it is the amount of oil & gas in that reservoir that a company estimates can be extracted with a reasonable rate of return based on prices set by the Securities and Exchange Commission. This means the total proved reserves for a particular formation can change as prices vary, or if technology makes it cheaper to access that formation. Here is a great visual explanation of this from the U.S. Energy Information Administration.

Source: U.S. Energy Information Admininstration.

To get a better understanding of how much resource potential a company has, it’s better to look at what is known as the 3P resources. This means proved, probable, and possible resources. This data gives a little more clarity to how much oil and gas a company can extract if prices were to change, or if technology improves. Not every company provides this information, but if they do, it can be found in its 10-K.

Another thing to consider when looking at reserves — and production — is how much of those reserves are in oil, gas, or natural gas liquids. Generally speaking, companies that have higher reserves and production in oil will generally have higher profit margins, because oil has a greater value on the market, but this isn’t always the case.

2. Reserves to production ratio

This is a very crude metric because it assumes two things that are highly unlikely: First, that current proved reserves will remain constant, which also implies that oil and gas prices will remain constant and no new technology will make more oil in place attainable, and second, that production will remain constant over this entire period. Any oil and gas produce worth their salt will look to both increase reserves and production, so the reserve-to-production ratio is only a snapshot of the current situation. If you want to get a little more involved you can do some quick calculations to compare production to 3P reserves or technically recoverable resources as well.