re E&P - I agree that a lot of money can be made with E&P but I have a hard time to tell the winners from the loosers. I do seem to recall the looser's better than the winners - there was DPTR, DBLE and many other flameouts. There is always a new crop of E&P's around to ignite excitement - IOC, MHR are the ones currently. So I tend to stick more with what I know - value companies based on proved reserves in the ground.
The way I see it, small E&P's do well when crude prices are rising - they their reserves increase in value, they can borrow more, create more value. The same feedback look works in reverse in a deflationary environment which we had in 2008 and 2009 and may have again right now. In this environment, only the cost leader thrive - companies like EOG, UPL, XTO.
So I think for a small E&P, the management is more important than the perceived quality of assets. A good management will probably find good assets to explore while a mediocre or outright bad one will botch it even if they happen to sit on good assets. But how do you find a good management before it's obvious to everybody else based on their track record?
What I like to do for example is to look in presentations from good companies with strong management teams and learn about other companies in comparative studies. For example UPL had a nice chart showing reserve growth/share over a couple of years (P. 6) :
phx.corporate-ir.net
GMXR for example shows at the bottom of the barrel with a reserve shrinkage/share of over 10% annualized. Together with the fact that I pointed out about the G&A costs running at around 1.5$/MCFE, with not much indication of economies of scale; I don't really think that GMXR is worthy of an investment (maybe a Spekulation <g>).
Anyways, NG looks like a hopeless case with a shear endless supply of potential shale plays lined up. it's going to be hard to make money selling NG is North America for all but the lowest cost operators since any slight rise in NG prices will bring a new shale in play that would otherwise be non-economical.
As for the oily plays, I sort of like NXY amongst he bigger players with somewhat solid base operation and as an option kicker large oil sand holdings that may be great if crude goes higher. GEOI does not seem to be that cheap but seems to be a good one to keep an eye on since they are still small and executing well, as far as I can tell. |
