The Lower Tertiary in the Gulf of Mexico is hot, says Jeff Robertson, an E&P analyst for Lehman Brothers in Houston. After Devon Energy Corp. and its partners' announcement of the ultra-deepwater Jack appraisal-well results, and Devon's stock jumped more than $10, he joked at a Lehman investment conference whether presenters had a Lower Tertiary slide they could slip into their show.
Robertson spoke at a Houston Energy Finance Group program recently. Prior to the Jack news, producers showing slides of shale assets had been the leading investment-conference "pixie dust," he said.
Also hot are E&P master limited partnerships-a type of U.S. version of the Canadian energy trust, but still having an exploration focus. Upstream asset-owners are looking through their portfolios for properties they can carve out and spin into this MLP format, Robertson said. The MLP format lends itself to a higher valuation than the average, traditional U.S. E&P structure
At least four IPOs of MLPs are under way currently: the EV Energy Partners offering by EnerVest Management Partners; the Winchester Energy Co. Ltd. package by Exco Resources Inc.; the Constellation Energy (aka Everlast) package by Constellation Energy Commodities Group; and a package by BreitBurn Energy Co. LLC.
"I think we're going to see more of these...It's becoming a hot topic," Robertson said.
The first E&P MLP since the 1980s was earlier this year by Linn Energy LLC, which Robertson covers. In mid-September, the Pittsburgh-based company was trading at 11 times cash flow and $3 to $3.50 per proved thousand cubic feet of gas equivalent, he said.
What's not hot? Rockies gas-or gas that's not traveling easterly. Some westerly delivery points are trading at or below $3 per thousand cubic feet, Robertson said. Natural gas prices on Nymex fell below $5 in mid-September. "Investors are showing a preference for less exposure to the Rockies."
In general, gas in storage is becoming so full, "it looks like it's getting difficult to put gas (somewhere) right now," he added. Operators' costs "probably need to come down to get in line with current commodity prices."
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