E$P opinion
October 26, 1999 04:04 PM
NEW YORK, Oct. 26 /PRNewswire/ -- Six leading analysts and twenty two Oil & Gas CEOs examine the Oil & Gas Producer sector in the latest issue of The Wall Street Transcript (212-952-7433) or twst.com
In a vital review of this sector for investors and industry professionals, this significant 125-page report features:
1) In an in-depth roundtable forum on Oil & Gas Producers (14,900+ words), four leading analysts: David Garcia of First Union Securities, M. Bradley Davis of CIBC World Markets, Robert Gillon of John S. Herold, Inc. and David Wheeler of Deutsche Banc Alex. Brown examine the outlook for the E&P sector, advancing independents vs. retreating integrateds, commodity price forecasts, full cycle economics evaluations, earnings and cash flow estimates, supply/demand factors, emerging markets, legislative outlook and advice for sector investors, including top stock recommendations.
The expert panel explores the competitive horizon, M&A activity, growth segments, investor sentiment, management performance and investor concerns. They analyze specific sector firms, and each analyst offers their recommendations with some stocks receiving a consensus of positive opinion, with the outlook for others hotly disputed.
"Consolidation absolutely will continue in the E&P sector," Gillon asserts. "North America has nearly 300 publicly traded E&P companies, and that may be 250 more than we need. Don't forget though that this is an entrepreneurial business, and new companies are constantly being formed. Last week saw the IPO of a Gulf of Mexico producer and one more is in the pipeline. We have seen a number of mergers among the larger companies; Louisiana Land with Burlington Resources BR and Parker & Parsley with MESA MTR , creating so-called super-independents, and more could occur. There have also been numerous mergers among the micro-cap companies. Surprisingly, the mid-cap group, which I'll define as those between $250 million and $1 billion capitalization, has seen less consolidation, although, arguably they might benefit the most. A cynic might say that these marriages don't occur because it creates an immediate surplus of CEOs."
"There's going to be rapid consolidation and it's going to be across the entire spectrum of market caps," Wheeler declares. "Companies looking to be acquirers include Apache APA , which clearly has positioned itself as a consolidation play; Burlington will look to expand its strong North American natural gas franchise and wants to expand its international scope; Devon Energy (Amex: DVN), we believe, is the most adept acquirer in the industry and is well positioned to capitalize on additional opportunities over the next year; EOG EOG will look to rebuild its international portfolio; Ocean Energy OEI wants to be a consolidator and a cost cutter in the U.S. Unocal UCL may look to add significant new producing assets in the U.S. And Union Pacific UPR is clearly looking to make a mark with its new management team and return to a growth mode."
Among potential targets, Wheeler highlights: "Unocal is an especially attractive target for a major integrated company. The company has high-quality or 'major oil company' assets in its portfolio, particularly in the Far East. Many of the global integrated major oil integrated companies do not have a strong presence in the Far East. Anadarko Petroleum APC has a tremendous production growth profile, which would be a welcome addition to the portfolio of many of the majors."
"The Louis Dreyfus Natural Gas LD /American Exploration merger was very successful," Davis recounts. "This merger did several things for Louis Dreyfus, the surviving entity. From an operational standpoint, it consolidated their position in the lower Wilcox play down in south Texas. Additionally, one of the drags on Louis Dreyfus' share price over time had been the lack of float, primarily due to the large ownership position by one entity, Louis Dreyfus et Cie, the Anglo-French trading company. By doing a stock-for-stock deal, they improved their float significantly, actually reduced their leverage position and created a bigger overall critical mass."
The panel goes on to offer recommendations about which sector stocks are most likely to reward investors.
"We think there's 35% upside in this group over the next six months," Wheeler forecasts, "so we continue to advise investors to overweight the E&P sector. Among the smaller cap names, we like Magnum Hunter (Amex: MHR) and Range Resources RRC ."
"We sometimes find foreign markets to be out of sync with U.S. valuations, although arbitrage typically closes the gaps within a few months," Gillon advises. "Currently, U.K.-based producers are trading at substantial discounts, 10% to 20%, to North American producers. Enterprise Oil ETP and LASMO plc LSO , both of which have ADRs listed on the NYSE, are fine companies that are now attractively priced."
Gillon counsels: "Among smaller companies, Evergreen Resources EVER has a coal bed methane play under development in southeastern Colorado that allows them finding costs and production costs that are the lowest in the industry. They actually make money with gas prices as low as $1.00/mcf. Possibly the hottest play in the industry right now is coal bed methane in Wyoming's Powder River Basin. Prima Energy PENG , with a market cap of about $130MM, has a large acreage position in the heart of the play. Prima has been growing at 20% or so a year for the last 10 years while maintaining one of the best balance sheets in the industry."
This issue also includes:
2) The TWST confidential Off The Record survey of management performance at 18 Oil & Gas Producers asked market insiders about the ability of management teams to create shareholder value. In a sector where many management teams are criticized for failing to adjust to the changing landscape, some CEOs receive top marks for their efforts.
Good discipline at Devon Energy, headed by J. Larry Nichols, President & CEO, maintains an expert. "Extremely good financial discipline, historical track record of growth through accretive acquisition without getting embroiled with debt. Good financial controls, very strong balance sheet, good growth in net asset value per share historically."
Straight shooters at Devon, according to this analyst. "They do their homework at Devon Energy. They make very smart deals, and you can trust them -- they're the type of people you would trust to be stewards with your money. They're straight shooters who aren't going to b.s. you. They call it like it is, not trying to tell you otherwise."
Firms reviewed in Off The Record include:
Alberta Energy Company Limited, Anadarko PetroleumCorporation, Apache, Barrett Resources, Belco Oil & Gas Corp., Burlington Resources, Comstock Resources, EEX Corporation, EOG Resources, Forest Oil, Louis Dreyfuss Natural Gas, Newfield Exploration, Noble Affiliates, Ocean Energy, Pioneer Natural Resources, Union Pacific Resources and Vastar Resources.
Read Off The Record and learn who industry insiders think is letting their firm "deteriorate rapidly" and who experts say "is all bark and no bite" and which firm leaves analysts who downgrade them off their Christmas party list.
This survey is a uniquely valuable resource for checking the "Street's" view of senior management.
3) Analyst Interview -- European E&P Companies -- In an extensive interview (4,100 words), Robert Arnott of Morgan Stanley Dean Witter examines new areas of exploration, political risks, management performance, taxation problems and inventory levels.
To read a free interview excerpt containing the stock he rates "strong buy" go to archive.twst.com
4) Analyst Interview -- Canadian Oil & Gas Royalty Trusts -- In a detailed interview (3,300 words), Daryl Rudichuk of Scotia Capital Markets explains why he counsels investors to consider oil and gas royalty trusts, current valuations, return levels and growth prospects.
5) Twenty two extensive (average 2,500 words) CEO Interviews with top management from the following sector firms discussing their future plans and outlook for their firm and the E&P sector:
Lundin Oil PANACO, Inc. Ocean Energy Pursuit Resources Danoil Energy Stellarton Energy Greka Energy PanAtlas Energy Bitech Petroleum Gulf Canada Resources Baytex Energy Genesis Exploration Plains Energy Founders Energy Abraxas Petroleum Magin Energy PetroCorp Anderson Exploration Centurion Energy International Cypress Energy Major Drilling Group International Encal Energy
To obtain a copy of this insightful 125-page report, see twst.com or call 212-952-7433. This special section is also included in the Natural Resources Sector of TWST Online at twst.com. Also included are the TWST Europe Oil & Energy Issue at http://www/twst.com/10-26-99.htm and the Morgan Keegan 9th Annual Oilfield Technology & Energy Conference Issue at twst.com.
The Wall Street Transcript is a premier weekly investment publication interviewing market professionals for serious investors for over 35 years. Available at twst.com, TWST Online provides free Interview excerpts. For highlights and recent recommendations by analysts and money managers visit twst.com.
The Wall Street Transcript does not endorse the views of any interviewee nor does it make stock recommendations.
SOURCE The Wall Street Transcript
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