Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: Terry D who wrote (67167)	5/26/2000 10:44:00 AM
From: Tomas	Respond to of 95453

Ballooning gas prices fan investor expectations. 'Sea change for sector': Smaller-cap Canadian producers seen as best bets Financial Post, May 26, with files from Bloomberg News and the Calgary Herald By Ian McKinnon CALGARY - The easy money from natural gas-oriented energy companies has disappeared, but analysts say healthy fundamentals and strong prices should reward investors willing to shift down to smaller firms. Wilf Gobert, head of research at Peters & Co., a Calgary boutique specializing in energy stocks, said a reassessment of the sector was being prompted by good fundamentals, the volatility of tech stocks, commodity prices at sustained higher levels than expected and the flurry of oilpatch takeovers at well above Street values. "The easy money has been made but on average most of these stocks are relatively cheap based on historical multiples," he said. Supply from conventional basins in Western Canada and the United States is dwindling while demand across North America is increasing. This week, for the first time in more than three years, gas prices on the New York Mercantile Exchange surged above US$4 per million British thermal units after a report showed U.S. inventories rose less than expected last week. Gas closed yesterday at US$4.236. The American Gas Association said supplies rose 55 billion cubic feet, or 4.7%, to 1.22 trillion -- less than the expected increase of 59 billion, at a time when utilities will need plentiful supplies for air conditioning this summer, forecast to be hotter than normal. UBS Warburg LLC said yesterday it did not expect prices to retreat near term unless there was a material increase in drilling or the forecast weather turned mild. Spot gas prices in Alberta have soared to nearly $5.25 per thousand cubic feet, causing some investors and mutual funds to load up on producers. "We thought there would be sea change in the price of natural gas and we're seeing it," said Bill Oliver, vice-president of marketing at Alberta Energy Co. Large and well-known gas producers, such as Canadian Hunter Exploration Ltd., Encal Energy Ltd. and Rio Alto Exploration Ltd., have all gained more than 40% this year. Investors looking to profit should look at small and mid-sized producers, said Mr. Gobert. His firm's "strong buy" recommendations encompass Berkley Petroleum Corp., Genesis Exploration Ltd. and Ionic Energy Inc. The brokerage's considerably longer "buy" list includes Compton Petroleum Corp., Cypress Energy Inc., Stellarton Energy Corp. and Thunder Energy Inc. Gas futures on the Nymex hit lifetime highs in the past week and Mr. Gobert does not foresee any thing in the short term upsetting the story. "Have we seen the peak? That would be hard to say," he said. "The [gas supply] sausage became a bubble and is now a shortage." The underlying supply-demand balance of the gas industry is "fantastic," said Andrew Byrne, an analyst who covers Canadian stocks for J.S. Herold Inc. in Stamford, Conn. However, he said the risk-reward equation at the moment favours money being poured into small producers. "I think there is probably a fair amount of upside left but you're a little late to the party at this time with large companies." Mr. Byrne said recent takeovers, which eliminated mid-sized gas producers such as Newport Petroleum Corp., Northrock Resources Ltd. and Ulster Petroleums Ltd., will prompt some buyers to go for smaller-cap players. He suggested Berkley, Genesis and Paramount Resources Ltd. as still attractively priced firms. Some analysts have said investors could buy juniors and hope they get taken over at a hefty premium, as happened earlier this month when Rio Alto said it was acquiring Renata Resources Inc. Its offer came in at 24% above Renata's average trading value in the weeks leading up to the deal. But it is difficult to pick the next target, warned Alan Knowles. "Given the strength of commodity prices, there aren't many companies that aren't undervalued. I think anybody, including somebody as big as Berkley, is a potential takeover target," said the Calgary analyst with Research Capital Corp. The high potential for oil and gas prices to maintain their robustness into 2001 had Mr. Knowles recommending large companies such as Alberta Energy, Canadian Hunter and Rio Alto. His smaller picks included Berkley, Bonavista Petroleum Ltd. and Cypress. HEAVY ON GAS: Producers' gas weighting (50%-plus) Weighting % Anderson Exploration (incl. Ulster) 60 Berkley Petroleum 64 Bonavista Petroleum 90 Canadian Hunter 83 Canadian 88 79 Compton Petroleum 60 Cypress Energy 60 Elk Point 62 Encal Energy 54 Genesis 60 Ionic Energy 88 Paramount Resources 91 Penn West 53 Petromet Resources 80 Post Energy 55 Rio Alto 82 Search Energy 71 Stellarton Energy 75 Thunder Energy 56 Velvet Exploration 50 Drawn from Peters & Co. April report, based on estimated 2000 production and 10:1 conversion of gas to barrel of oil equivalent Source: Peters & Co.