Elmer / Gas producers
This is a very good question, without an obvious good answer. Among the reasonably well-established gas producers, I haven't been able to find what looks like a genuine bargain. Those that are cheap seem to be cheap for a good reason -- debt troubles, or indigestion from an acquisition, as examples. Those without skeletons in the closet (or whose bodies are carefully buried) didn't sell off to the extent of say, oil producers, and rebounded to the point now where they are hard to describe as cheap. Genesis is one; Rio Alto another; and Merit a third. These are companies with proven track records and worth looking into, but they're well followed.
I mentioned indigestion from acquisitions and debt. Newport Pete. is one of these. Reserves are 57% gas, production is around 25,000 boe/d. The last couple of years it's really been a frog, but I suspect that there may be a prince under the warts. Just a suggestion.
Why E&P instead of staying with Service and Supply? I guess just a question of volatility. When the sector turns sideways, the producers can still produce, but the S&S guys see their orders disappear completely. I was very close to buying Prudential Steel a couple of years ago, around $40. It very quickly went to $90, and almost as fast went back to $15 (pre-split - shares split 3:1 in November '97). If you can time things correctly, there can be a larger payoff in S&S. E&P maybe isn't quite as big a challenge. |
