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Could these 2 tiny energy companies be a better bet that Santos Ltd and Oil Search Limited?

While Santos Ltd (ASX: STO) and Oil Search Limited (ASX: OSH) are two giants of the energy industry and both are enjoying success with their significant LNG projects there are two big reasons to consider other smaller, innovative energy players.

Firstly, small, early stage energy producers have significant upside potential. While the inherent investment risks in these small companies are certainly elevated compared with the likes of leading players such as Santos and Oil Search, the possible rewards are also a multiple of the returns investors could expect to receive from much larger, established companies.

Secondly, some of the innovative smaller firms – such as the following two – are “greener” than their larger peers. This stands to be a major benefit to their business models in future years as governments and organisations become more concerned with the environmental impact of many ‘old’ forms of energy.

Geodynamics Limited (ASX: GDY) has so far failed to live up to the initial hype which surrounded the ‘hot rocks’ energy explorer. Despite the ”rocky” start, with a market capitalisation of just $20.5 million and a number of years of technical knowledge behind it, the stock could be worth a close look by investors.

Geodynamics is a leader in the field of Enhanced Geothermal Systems (EGS). The beauty of geothermal energy is that it offers long-term energy security, clean/low emissions and base load power. With a pilot project established in the Cooper Basin and opportunities being explored in the Pacific Islands where there is a need for sustainable energy supply, Geodynamics future is starting to look more positive.

The share price of Carbon Energy Limited (ASX: CNX) has leapt 256% in the last six months from 1.4 cents to 5.1 cents with the firm now commanding a market capitalisation of $65 million.

The technology behind Carbon Energy was initially developed by the CSIRO, which has led to the research body owning 2.2% of the company. Interestingly, Incitec Pivot Limited (ASX: IPL) which requires significant volumes of gas as part of its manufacturing process is on the share register owning a further 5.9%.

Carbon Energy is developing a gas business with the aim of being a major eastern Australian gas producer by unlocking deep “uneconomic” reserves through a unique key seam technology (Underground Coal Gasification) which has a number of environmental benefits compared with conventional coal mining and other gas operations. These environmental benefits include a smaller environmental footprint, preservation of groundwater, and no fracking or excavating. With first gas aiming to be produced in 2017, shareholders shouldn’t have much longer to wait before they see a return on their investment.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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