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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: jeffbas who wrote (9692)	1/20/2000 8:22:00 PM
From: Archie Meeties	Respond to of 78717

re:(PETD) "they do not materially benefit DIRECTLY from an increase in energy prices". That is the typical polemical trick of responding as if none of PETD revenues come directly from ng prices when in fact, around 1/3 of their revenue is currently from ng sales, and this figure is increasing. Although, truth be told, they don't benefit at all from an increase in prices because they have hedged at 2.95/MMbtu until March (ng closed at 2.57 today). However, if long-lasting higher prices were in store... If you really knew if higher prices were in store (and you never will), you would buy a driller. At some point the drillers margin goes up and stays up (because of sustained increased rig demand) and the explorers margin begins to go down, although they'll still do well. The optimal time to buy the type of company you are referring to is in the initial leg of an energy cycle, when the cost of exploration is still very cheap. "Even if "backwardization" reduces the benefits of hedging over time, the benefits are usually still positive." Even if a co. miraculously hedges 90% of production at the peak of oil prices, market sentiment will turn against an E&P if oil corrects. Those hedges won't last more than a few months - the market anticipates that and the share price will correct right along with oil.