Analysts gushing over oils
What took them so long? Well to be honest, the analysts have been making the point all along, but the news organizations are only now covering the event cbs.marketwatch.com tx?source=blq/yhoo&dist=yhoo. With the price of crude soaring past $34 a barrel ahead of the latest supply report from the American Petroleum Institute due out later Tuesday, analysts were having a field day with the sector Tuesday.
Matthew Warburton, who covers the major oil companies for Warburg Dillon Read, took the opportunity to reiterate his ?buy? recommendation on Exxon Mobil (XOM: news, msgs) saying the company remains his ?preferred US major oil? with a price target of $95.
Warburton raised his oil price forecast by another $4.50 a barrel to $26.50 West Texas Intermediate (WTI) for this year and $2.00 a barrel WTI for next year to $22.00 and also boosted his natural gas price forecast to $2.65/mcf from $2.40/mcf for 2000 and to $2.75/mcf from $2.40/mcf for 2001.
?On this basis,? Warburton said, ?oil prices this year would be at their highest level since 1985 and the 3rd oil price shock, while prices next year would be right at the top of their 1986-99 range. The oil and natural gas price ugrades increase aggregate US majors EPS (earnings per share) estimates by 18 percent in 2000 and 22 percent in 2001.?
?While the sector multiples look reasonable, material outperformance remains closely linked to a wider market retreat,? Warburton said noting that despite 2000 earnings per share growth substantially above the market, material outperformance from the U.S. majors appears likely only in conjunction with renewed concerns over technology issues or with a wider market decline.
On the exploration and production (E&P) side, Warburg?s Michael Barbis told clients that with the higher oil and gas price forecasts the E&P group was trading at a record low multiple and was poised for a ?powerful rally when investors acknowledge the improved prospects we see not only for oil and gas prices but for the E&P companies themselves.?
Barbis said he expects the group to rally by as much as 50 to 100 percent over the next three to six months and thinks that with most E&P stocks at or close to record low valuations ?investors will do well with almost any E&P stock.?
For natural gas exposure, Barbis said his top picks include Apache, Devon and EOG Resources. Barbis also added Burlington Resources and Noble Affiliates to his top gas picks list. Barbis noted that, on average, he thinks this basket of natural gas stocks offers near-term upside potential of 63 percent.
As for crude oil exposure his top pick is Vintage Petroleum. Despite a 63 percent rise over the last three months, Barbis expects the shares to increase another 52 percent over the near-term.
On the exploration side, Barbis said his top picks remain Ocean Energy and Santa Fe Snyder. Even though this group is up 44 percent over the last three months, Barbis said he thinks they?re good for another 101 percent of near-term upside.
The Canadian Association of Petroleum Producers, Canadian Association of Oilwell Drilling Contractors and Petroleum Services Association of Canada are predicting 13,550 to 15,000 completions in 2000, compared with this year?s expected 10,200. About 70% of the wells will chase natural gas targets, compared with the traditional 40% until three years ago.
Well licences issued by provincial governments across Canada almost doubled in the second five months of 1999, averaging 1,315 a month from 744 in the first five-month period. PanCanadian Petroleum led the operators with 1,177 licences, followed by Canadian Natural Resources, 651, Renaissance Energy, 639, and Alberta Energy Company, 627.
#########################################
Above is from one of Steve King's recent PetroDispatch's. He is much more knowledgeable than I so I would defer to him.
I resolved to drastically reduce my portfolio's participation in O&G stocks last year. I have done that but I can't get it totally out of my system. Favorite O&G stocks right now are Panaco (PANA) and Petroquest Energy (PQUE).
Don't know very much about gas-to-liquids. |
