Mr. Dodge: The E&P business on balance now is wonderful. What has happened in the divergence of oil and natural gas prices is that there have been some reductions in budget in the natural gas prone areas like Western Canada, parts of the Rockies and south of the US Gulf of Mexico.
TWST: Scott, I will ask you the same question. What has this dichotomy done to
the group?
Mr. Hanold: You make a good point — there has been a dichotomy with respect to
performance. I think you can see a marked difference in performance across both
market cap and oil versus gas stocks. Historically, a lot of the E&Ps,
regardless of being oil or gas prone in nature, have traded for the most part
together. With oil prices breaking out and now at 90 to 95, there has been
more strength in some of the oil levered stocks, such as Denbury Resources (DNR)
and Apache Corp. (APA). In general, the gas names have performed well, but the
best performance has been with stocks levered to oil prices. As Phil indicated,
in certain areas there has been more pressure, most notability in the Rockies,
where capacity constraints have resulted in very weak prices.
Up in Canada, economics are a challenge as well for a few reasons. One, you
obviously have lower price realizations for natural gas. Two, service costs
haven't softened as much as they have in the US. Three, the Alberta royalty tax
increase has really put a little bit of pressure up there as well. For the most
part, as long as natural gas prices hang out above 7 per Mcfe and the forward
strip is in that 7 to 9 range, I think a lot of E&Ps that are in growth mode
will continue to be in growth mode. I would expect on average for the balance of
2008 to see a gradual uptick in activity.
Tickers included in this excerpt: APA, ARD, CHK, DNR, EAC, EOG, HLX, NGAS, ROSE, SM, SWN, TRGL, UNT, UPL, WLL, XTO
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