Energy, Energy Service, Natural Gas &amp; Oil Sectors

Top 530. Jul 4, 2001 9:44 AM

» lcha - Re: Re: Price caps don't work

In response to message posted by Kirk:

I can not believe that rational businessmen who know they will get a high price for their product will not willingly sell that product. To not sell their product at high prices would require a big explanation to shareholders.

I have to believe that with all the threats made in the past several months, they believe they will not be paid at all. As such, they have a responsibility to their shareholders to withhold their product.

-- posted by lcha

Top 531. Jul 4, 2001 9:53 AM

» lcha - Re: Re: Price caps don't work

In response to message posted by Rande:

And just who caused these companies to have to hire teams of Lawyers in the first place?

If I am threatened to be sued, threatened with jail time and put in front of special committees, you can bet I will spend a considerably amount of time on legal matters with my Lawyers.

Point 2. All, American businesses try to find loopholes in any and all regulations they can. If they don't, their competition that is will put them out of business. In this case CA created the playing field and made the rules. Any business that was forced to play by the rules tried to use them to their best advantage.

-- posted by lcha

Top 532. Jul 4, 2001 11:56 AM

» Rande - Re: Re: Re: Price caps don't work

In response to message posted by lcha:

Even Goebbles at his height couldn't spin a propagand machine sufficient to generate the illusion that the power generators are poor, innocent victims in this mess.

-- posted by Rande

Selloff May Spark Energy Stocks

Top 533. Jul 4, 2001 2:52 PM

» JenL_2 - Re: positive NG

In response to message posted by lcha:

Icha - here's an article bullish on Energy Stocks from 7/3 Barron's Online:

By Dimitra DeFotis

Energy shares aren't exactly setting off fireworks for investors these days.

And not even news Tuesday that the Organization of Oil Producing Countries agreed to keep production levels static -- a trend in recent months -- caused much of a rally.

Since March, oil prices have fallen 10% to around $26 per barrel and natural gas prices, 43% to just under $3.00 per million British Thermal Units (BTU).

Subsequently, the E&P sector fell 24% from its December highs, and shares in drilling and services companies dropped 33% from their highs last September, according to Thomson Financial/Baseline.

But some optimistic fund managers tell Barron's Online that the selloff is overdone, creating a buying opportunity.

Why? Even though North American demand is off thanks to a slowing economy, that has not caused a surplus of natural gas, points out Ed von der Linde, manager of the Lord Abbett Mid-Cap Value Fund. With tight supply, natural gas prices should remain above their historic price near $3.00 per million BTU.

What's more, oil prices are likely to stay in the mid-20s for some time, says Fadel Gheit, a senior energy analyst at Fahnestock & Co. That lower but stable oil price should benefit companies looking to fund expensive deep-sea-drilling projects.

Capital expenditures in the search for oil and gas are expected to go up by at least 15% year over year, one fund manager tells Barron's Online, and companies that provide the transport, manpower and parts needed on rigs should benefit as well.

"The stocks are discounting problems that the price of crude and gas have had for the past couple months," says Kevin Rendino, manager of the Merrill Lunch Basic Value Fund. "I think it is an overreaction."

On Tuesday, Lehman Brothers Analyst Thomas R. Driscoll revised his second half 2001 and 2002 estimates for natural gas prices to $3 per million BTU -- much lower than his previous estimates over $4. The popular theory goes that if you divide the price of crude by 6, you should arrive at the fair price for natural gas. The current natural gas price is discounting a low crude price of $19 a barrel.

Von der Linde thinks investors will begin to rediscover the virtues of energy stocks at these lower prices.

"My risk is lower in energy services or energy in general, where I still have a positive rate of growth in spending, vs. technology, where I have tremendous inventory hanging around plus rapid technological change," von der Linde says.

Rendino says the best way to play these trends is oil services, "where the stocks have been absolutely crushed." Among his picks, he sees stability in earnings, with each company trading well below where it should be in the cycle. One example is Transocean Sedco Forex (RIG), a contract driller, whose shares are 37% off their 52-week high of 65.50, set last October.

Transocean acquired R&B Falcon in January. With a market capitalization of $14.6 billion, it's the world's third-largest oil services company. And it holds nearly half of the industry's deepwater drilling capability, according to Standard & Poor's.

When we last mentioned Transocean we said that the company could still make a profit even if crude prices were $20 a barrel. And because the company benefits later in an energy up cycle because of its deep-water drilling, analysts expect it to start putting more rigs to work as drillers' day rates improve.

At 40.80 Tuesday afternoon, Transocean fetches 11.8 times First Call/Thomson Financial's calendar 2001 cash-flow estimate of $3.43 per share and 7.5x its 2002 cash flow of $5.43 per share. The stock could reach 75 within 12 months, or upside of 45%, predicts Mark S. Urness, an analyst at Salomon Smith Barney who rates the stock a Buy.

One of von der Linde's picks, an exploration and production company, is EOG Resources (EOG). It was spun off from Enron Corp. in a stock- and-property-swap in July 1999 that left EOG with roughly 80% of its production in natural gas. He likes EOG for its strong cash flow, earnings power and the positive demand forecast in the domestic gas market. The stock is 37% off its high achieved last December.

On a cash-flow basis, EOG is changing hands at just 3.6 x First Call's 2001 cash flow per share estimate of $9.81, and 4.2x 2002 cash flow of $8.33. It historically traded at a 7.6x forward cash flow P/E multiple, according to Thomson Financial/Baseline.

Of course, oil and gas prices may fluctuate in the months ahead, especially if recovery in the global economy is delayed. Without stabilized pricing, earnings estimates are just that: estimates. And deepwater exploration and production might not take shape for another six months or more until oil and gas prices show sustained stability.

But investors have already "discounted pretty dour price outlooks that don't reflect the industry's ability to self-adjust," Merrill Lynch analyst John P. Herrlin, Jr. wrote recently.

That said, longer-term investors might do well to refine their energy picks and focus on the long-term benefits of stabilized energy prices, something that would be a real cause for celebration.

Subscribe to WSJ & Barron's Online @ http://www.wsj.com

<img src="http://chart.neural.com/servlet/GIFChart..." width=450 height=250>
RIG, EOG, XLE, IYE, S&P500 1 YR Chart

......Jen

-- posted by JenL_2

Top 534. Jul 4, 2001 5:26 PM

» Rande - Re: Re: positive NG

In response to message posted by JenL_2:

Not too surprising that money managers who are already married to these stocks would have good things to say. Pity the poor investor who jumped on the bandwagon in the last six months though. The energy sector should do just fine over the long term. But overweight this or any other sector in what amounts to nothing more than a casino bet? Why? Diversification remains paramount and there's a whole universe of good companies in a myriad of sectors from which to choose.

Best line is the final one:

That said, longer-term investors might do well to refine their energy picks and focus on the long-term benefits of stabilized energy prices, something that would be a real cause for celebration.

Amen. Investment prospects aside, enough of the roller coaster when it comes to the cost of oil and gas. There must be an equilibrium point where producers, consumers and investors can coexist happily.

-- posted by Rande

Top 535. Jul 4, 2001 5:57 PM

» lcha - Re: Re: Re: positive NG

In response to message posted by Rande:

No, there is not an equilibrium point where producers and consumers can coexist happily. 18 years in this business has convinced me of that.

Consumers are only happy when energy prices are so low that energy companies are going out of business. Consumers despise energy companies over environmental issues. Consumers don't want any hydrocarbon extraction anywhere NEAR where they live, work or play.

What consumers(U.S.) do want is to suck 19 Million barrels of oil and 61 Billion cubic feet of NG out of the earth EVERY DAY.

-- posted by lcha

Top 536. Jul 4, 2001 6:12 PM

» lcha - Re: Re: positive NG

In response to message posted by JenL_2:

I think a lot of money managers were looking to energy to save their tired, tech heavy portfolios at the beginning of the year. They were looking for a short term boost and was hoping energy would be it. Too bad they jumped on the bandwagon a year late to catch their short term fix.

Energy will be a great long term play that I believe will play out over the next 5-10 years. Unfortunately, that's about 30 times longer than the average investor has patience for these days so there will be some major volatility along the way.

Charles Dow said to buy stocks when they are a good value and then have the patience of 6 men. That's what you will need playing this sector.

-- posted by lcha

Top 537. Jul 5, 2001 5:02 AM

» lcha - Re: Re: Re: Re: Price caps don't work

In response to message posted by Rande:

You have really outdone yourself here Rande. You have gone from invoking "bloodsuckers"(I assume this covers the gamut from leeches to vampire bats) to one of the people who share responsibility for systematically gassing 12 million people in your references to energy companies. Now it's only July and the Nazi connection has already been made. Where do you go from there?

-- posted by lcha

Top 538. Jul 5, 2001 5:15 AM

» lcha - Re: Re: Re: positive NG

In response to message posted by Rande:

Rande -

As one who espouses intelligent investing why did you use a six month return on the energy sector in your example here. Do you think it is prudent for investors to be focusing on six month returns? Any PRUDENT investor who invested in the energy sector, or any sector for that matter, should have had a 2-5 year time horizon at minimum. Any less and it is not investing but speculation.

Now, go back 2-3 years and show the returns on the energy sector. Compare those returns with the S&P and, better yet, the tech sector.

I think I've fired all my guns these last several post. Your complete and total bias against anything energy just gets me going sometime.

-- posted by lcha