YPF, SGY ?'s and some E&P ideas...
drsvelte; I haven't followed SGY/Stone Energy. I'm sure you saw theStreet.Com article which questioned their valuation. It also mentioned the CEO's ''salesmanship'' - which is a good thing . I would say that it does not appear to have the upside here of many other choices, but it appears the Street likes their potential drilling prospects etc.
YPF: The Argentine connection. A good way to get some International Diversification and longterm growth potential. YPF has bounced well of late and isn't very far off of its 52 week high; so just not enough upside nearterm for me... LUKOY (Russian) may be a high risk upside play here, and the Italian, Spanish, French Companies have all been mentioned by analysts of late. Personally in "Big Oils'' I like ARC (owns a chunk of Vastar) and MRO for high upside leverage to commodity prices and being very stable safe investments. I own MRO and will add on ''any'' dip sub $24 here in a big way - I see $30 as a ''no-brainer''. - these guys pay dividends as well - not a bad little benefit either.
One ''idea/concept'' that presents an opportunity in a couple of ways, is the Rig utilization count. The Rig count of rigs drilling for Nat Gas has declined from 650 in Nov 1997 to 420 in late February here of late and is not expected to bottom untill about 400 - so we have NOT seen a bottom in Rig count/utilization yet !
The ''message'' here is two-fold: #1 - this is not bad news for the gas stocks. Gas supplys are historically a little high here - and the bears won't pull the trigger of gas stocks yet because of this. However; it takes 525 rigs drilling just to keep up with current US demand/use. We have a mathematical supply shortage built in here - on a time delay. Analysts have dramatically increased Gas price estimates for the end of 1999 and 2000. The sole reason is the mathematical impossibility of turning on the spigots. There is no OPEC to just buy Nat Gas from etc. Natural Gas stocks here are fantastic buys. Watch how the BR buyout rumor plays out. If BR is bought out for near the rumored price - Gas stocks will get a valuation ''pop'' shortly. NBL EOG and similar large caps especially so.
#2 - of this Rig count/utilization declin situation; is that the Drillers have NOT seen the bottom yet in utilization ! As RDC's CEO Palmer has pointed out - we need 150 offshore rigs working for dayrates to increase and onshore utilization is also no where near its needed levels to have dayrate leverage nearterm. As such; one would be prudent to take some profits on this run up in Driller & Service Stocks imho & rotate some cash into the E&P's who actually receive a cash/earnings benefit right now from higher commodity prices; unlike the Drillers who must wait for Rig utilization/dayrate improvements ! Service companies as well.... Now, this is ''not'' to say that the recent move in the Driller/Service stocks is unwarranted, or even over; but rather imho - that the day will come very shortly (post OPEC meeting euphoria) where analysts & bears start promoting reality here. That reality is that Drillers & Service companies are NOT really reaping ''any'' actual cash/earnings benefits yet ! They will point to OPEC non-compliance be it actual, or potential. A retracement is not just probable - it will happen. It may be a savy move to rotate some profits from major run ups in the OSX stocks to some E&P's imho...
Here is a short-list for ''DD" - I've left off may companies that have either run up recently and have less potential upside left; such as NFX BR LD etc. I have also just listed 2-3 ideas in each sub-catagory; there are many others to research...
Mid/Lg Caps: NBL, EOG, APA , & OEI/SGO for an high upside/leverage play with cooresponding risk/reward.
Small/Mid Cap: MARY, XTO - (cash for acquisitions),
Small/Micro Cap: EVER, MLRC, PETD
High Leverage/High risk/return: RRC CRK PGEI
Exploration plays: HEC, SEV - (colombia), VPI (yemen), FXEN (poland). LUKOY (russia), CPMNY/SPPTY (australia) and in the US - EEX & CWEI are especially oversold with single project success able to increase shareprices 2-3 times from present levels.
Oversold /high debt - leverage/Trading opportunites: BEXP -(relative safe play) and FEN & AXAS for high risk, but 3-8 times current price potential with exploration success and a permanent higher price commodity enviroment. These companies have been sold off to ''option'' price levels. See ''Captainfreddys'' post on Yahoo's 'FEN" thread - this is a lot better play than most ''options'' imho for those who wish to ''swing for the fences'' on occassion.
fwiw* RRC is my favorite risk/reward play. Company has strong cash flow, excellent Nat Gas properites - (this separates them from the pack) and only needs to sell a planned $100 Million in properties to pay down debt and for Gas Prices to increase anywhere near estimates to be a certain 2-3-4 x return from current prices.
The leverage that these companies have to commodity prices can change their financial picture overnight. CRK for example recieves $1.6 million in additional cash flow per share for each .10 cent increase in Nat Gas prices.... At least two Analysts have $12-15 price targets on this $3 stock ! A mere .30 to .50 cent rise in gas prices can pay for the entire years cap ex/drilling budget for some companies.
Let the Driller & Service stocks run - they have some more room to move imho; but taking ''some'' profits on the high flyers and rotating into some E&P's is prudent imho. A retracement in the OSX stocks of 10-20% in individual cases is in the cards on any Post OPEC meeting euphoria disappointments. Let the first poor OPEC compliance news release hit ''doomberg'' about May and watch what happens... The Dayrates, Rig count/Utilizations and EARNINGS will matter once again ! - the E&P's will be putting it in the register - where the Drillers & Service stocks will lag in the time untill they actually reap the benefits... food for thought. |
