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Gold/Mining/Energy : Strictly: Oil and Gas Exploration Companies -- Ignore unavailable to you. Want to Upgrade?

To: wolfdog2 who wrote (100)	12/8/1998 1:04:00 PM
From: Mark Adams	Read Replies (1) \| Respond to of 318

.. has hit the fan in the oil patch. News could not be much gloomier. I haven't read much about trouble getting additional financing, or heard bankruptcy used yet. So it could get a bit worse, not that it will. There have already been a slew of false bottoms in the sector. If you don't already, you might want to get a subscription to Offshore which is published by Mike Simmons. It's free. Thanks for the suggestion, I'll check into it. Incidentally, E & P stocks are valued not against earnings, but rather cash flow. One of the reasons for this is because conservative companies write off all their drilling expenses up front, which has the effect of depressing earnings, even when the companies are doing well. Very important info. It's those companies that don't expense their drilling costs then, that I'd want to be aware of. Even within the oil patch, you have to be careful about comparing capital intensive business, like transport ships, to technology intensive business like seismic. So you can't just do a filter on PE or Current Ratio and have the best companies. For Gas producers, I was thinking this weekend that the two primary factors would be their current profitably, given depletion rates, estimated reserves and reserve growth. That's a tough nut to crack. But you extract this info for a group of producers, graph their reserve growth increase (do we factor out mergers, limiting growth to the drill bit?) to quantify their ability to grow reserves. And it would be possible to develop a number representing the income they generate at today's price multiplied by their reserves. With those two factors, you could rank the different Gas producers as their share prices changed. You commented in an earlier post that EOG had a high P/E. I haven't looked at its P/E lately, but EOG's P/CF is about 6, which is low. I usually look at cash flow, but more from the perspective of debt service and growth potential. I also think that you need to differentiate between the fundamentals for the oil stocks and gas stocks. Perhaps you do, but that wasn't clear from your posts. My primary interest has been companies producing natural gas, but when you talk about service and drilling companies (actually another thread, so off topic here) most work in both areas, no? I believe, conditions will stay depressed longer for companies focused primarily on oil than those focused on gas. Keep in mind that a US company drilling for gas in La, for example, has to deal with supply generated only by companies located in the US and some parts of Canada. Oil companies have to worry about supply created globally. At the moment the world is awash in cheap oil. Not so with gas. The gas surplus could evaporate very quickly. Yes, but when you think about this, your saying 'Gas producers are a better bet because they don't face competition' from other producers due to transport costs. That's a well known argument, but not one I want to base my future on. There are companies that are developing more cost effective Gas to Liquid processes, and should the price of oil go up beyond it's normal trend, there will be more incentive to make this happen. From what I've heard, there are tremendous known gas reserves which are just capped off waiting for the moment to come on to the market from what I understand. I don't factor this in as a short term consideration. Gas does have a more ecological freindly footprint, which I do like, and may be converted to electricity via fuel cell, which will be a good thing eventually.