From Barron's "Up and Down Wall Street" column:
Tom Petrie is an old friend who runs a neat shop specializing in oil and
natural gas, called Petrie Parkman & Co. The firm is in Denver, an admirable
location, since it's far from the madding crowd and close to the energy throng.
We've chatted with Tom any number of times over the years and if he isn't
infallible, an attribute restricted to popes and journalists, he's invariably
informed, insightful and blessed with a keen investment eye.
When OPEC finally decided to clean up its act earlier this year, Tom was one
of the few oil pros who thought the gang would be able to suppress its
congenital impulse to cheat long enough to successfully throttle back output.
And so it has, providing both the price of crude and the price of many energy
stocks with an impressive lift.
Inevitably, as prices hit and even topped $20 a barrel, cries have gone up in
the Street that $25 must be right around the corner. Since some of these petro
prophets not all that long ago were adamant that $12 oil or lower was in the
cards, we decided to ask Tom what he thinks.
And what he thinks simply is that they're blowing smoke. Sure, he says, crude
might flare to that level on some freak episode, but, if so, it's likely to come
back down just as quickly. Rather, he expects a moderate $18-$21 range,
primarily because the powers-that-be at OPEC, he suspects, prefer it.
Any big jump in the price of crude, he points out, would stimulate supply in a
hurry. As it is, he notes, deep-water finds are coming on stream in places like
the Gulf of Mexico and off West Africa. What's more, thanks to the wonders
of technology and the fact that the heavy capital investment has been made,
production in those deep waters is fairly economical. It'd get a lot more so,
obviously, if prices spike, which is why the Saudis & Co. are not eager to see
them spike.
Tom remains quite bullish on natural gas. For a spell there, he says, the price
was a mite depressed, artificially, because some of the usual-suspect financial
players decided to liquidate their very ample positions in the futures market.
As to stocks to buy, he favors a quartet of independents, all traded on the Big
Board: Apache, which made a dandy acquisition of Shell Oil holdings in the
Gulf and has a strong balance sheet; Forest Oil, solidly positioned via
properties in the Gulf Coast and Western Canada to cash in on a tightening
North American gas market; HS Resources, with a strong stake in gas in
Colorado and selling at a deep discount to net asset value; and Ocean
Energy, which, having undergone a necessary financial restructuring, is poised
to capitalize on its deep-water plays off Africa and in the Gulf.
Tom sees Apache, now selling a fraction over 34 and at 6.4 times cash flow,
hitting something like $44 within 12 months; Forest (4.3 times cash flow)
rising from under 14 to 18; HS Resources (2.2 times cash flow) from around
13 to 18 and Ocean (3.6 times cash flow) climbing from 10 to 15.
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