Strictly: Drilling and oil-field services Message Board

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Gold/Mining/Energy : Strictly: Drilling and oil-field services

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To: patron_anejo_por_favor who wrote (88279)	3/1/2001 9:48:43 PM
From: Big Dog	Read Replies (4) of 95453

Excerpt from Raymond James report: Long-term natural gas contracts As we detailed in a previous Stat, a plan emerged a few weeks ago to have the State of California purchase electric power on behalf of California’s two largest investor-owned electric utilities. These purchases are widely expected to be five- to 10-year purchased power agreements with wholesale electric producers, totaling over $10 billion when all is said and done. We believe the California power bailout will trigger the reemergence of long-term gas and power contracts. In other words, we believe this creates a new paradigm shift in gas prices and metrics used to evaluate North American energy companies. Based on the latest round of bids in the California wholesale power market, the average price for power is $60 per MWH. Five- to 10-year power contracts of $60 per megawatt-hour would justify power producers paying $6 per mmbtu for natural gas over the next several years. This will clearly have a profound effect on the way the market looks at and evaluates energy companies. As the convergence between the gas and power markets continues to strengthen each day, we would anticipate coincident long-term natural gas contracts to be signed at levels well above current price forecasts. Clearly, the result of creating a floor price for natural gas of around $5 cannot be stressed enough. Drilling activity for natural gas would soar to record levels and E&P companies would be much more aggressive in seeking out projects, as much of the uncertainty regarding future natural gas prices would be removed. Conclusion It seems obvious to us that the combination of increased earnings visibility, upward budget revisions, the Bush administration’s energy plan, and long-term natural gas contracts all point to an even stronger year in 2001 for the oilservice group. The energy sector as a whole should provide a safe haven for money managers this year if the economy continues to show signs of slowing growth and a possible recession looming on the horizon. Overall, we believe the oilservice group will continue to post record earnings and profits in 2001 and is poised for another good year. Full report at: raymondjames.com big

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