Mr. McPherson: Lately, at least for the last six months, it's been kind of a case of the tail wagging the dog, where the price of oil is really what's been controlling the movement in the E&P stocks. In a lot of cases, fundamentals have been kind of pushed aside and the action in the oil price is what's really dictating things. The last week or two, what we saw was basically the second half thesis of the recovery in the economy getting pushed out to maybe more of a fourth quarter or first quarter next year event. Typical with Wall Street, people grew impatient and took oil prices down by about 17%, 18% from the peak of around $72, and it seems to have found a footing here in that $58, $59 range, and in my opinion, that probably will trade sideways for a little bit.
TWST: The oil prices were down 17%. Did that bring down the E&P stocks as well?
Mr. McPherson: Yes, in a lot of cases, even more than 17%. One of the issues we
actually went out recently and pounded the table on was ATP Oil & Gas (ATPG). It
declined by over 25% during that same period. We felt that oil prices have
perhaps hit a bottom here and are due for a bounce, and you might get a bit more
of a bounce in one of these smaller names that have been hit harder. (Full
disclosure: GHS recently participated in the company's secondary offering.) If
oil does start to trade in a less volatile range, you're probably going to
eventually have a decoupling between the haves and the have-nots. What I mean by
that is, a better company should tend to have a better price performance than
its peers. We think with the speculators in the oil market and the press talking
about some of the stuff that the government is doing, that could actually dampen
some of the volatility we've seen, which I think could be good for the sector.
Tickers included in this excerpt: ATPG, BRY, DNR, EPM, GEOI
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