Richard / Near Sight Outlook
The way I see it.
I think oil prices are peaking. We just might get to $30.00, but if and when we do -- it will be short lived. After the first of the new year, I would anticipate an overall decline in the price. Come mid-year 2000, I think the price may trade in a more traditional range of $18-$20.
Is this considered a negative outlook on the industry -- heck no, the industry is looking strong.
From this point forward, the service sector should be rewarding. I see extensive drilling programs over the near term and further, adjusting for the normal seasonal trends.
As for the producers, the next three reporting periods should be very interesting and to the benefit of shareholders.
Beginning with the third quarter of next year, the scenario changes somewhat. Oil prices realized by the companies in the year ago period will be down. Therefore, one will have to be very selective in selecting their investments over the short term from that point forward. However, this should be just that -- short term, matching the spike in prices in the 3rd and 4th quarters in 1999.
My thoughts and focus at this time forward will be on debt reduction, reserve and production growth.
Companies should be planning to reduce debt by year end 2000 to around 1.5X forward cash flow. That will be an important performance factor to me. More so for the smaller companies with production less than 5,000 bbl's/d.
One other point on a subject I am not to familiar with. If I were a company which can sell crude forward, I would be seeking to lock in a price right now.
On the natural gas side, we are at a situation where we are at an 8 month low in prices and they could even slide further. Most everything depends on the weather over the short term. Watch the weather trends for the Midwest U.S. -- that's the key. The Northeast is gas guzzling - but most of Canadian natural gas goes into the Midwest.
As far as mention of individual companies, I think Talisman Energy, Alberta Energy and Canadian Occidental Petroleum offer sound growth and would be concentrating on these for my retirement accounts. TLM is a good value and I believe they are in a win-win situation regarding Sudan. In other words, no matter what happens in the future related to Sudan, they will be a winning position to benefit shareholders.
Next step lower, I like Paramount Resources and Berkley Petroleum for above average growth over the next couple of years. Among Junior Oils, I am staying with Genesis Exploration as I am continuously impressed with their performance. For the smaller sized Juniors, I continue to like Tethys Energy, Thunder Energy, Cypress Energy, Compton Petroleum and Purcell Energy among others. Adding a little international flavor, I find Niko Resources an interesting situation.
There are others I like, but a little pricey at this moment. Penn West Petroleum fits into this category.
As always, keep in mind -- just one person's opinion, this time it was mine.
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