Brian A. Toal, Financial Editor

A?t EnerCom Inc.’s 13th annual The Oil & Gas Conference in Denver, attended by some 1,200 oil and gas executives and investors, the major themes voiced were cost containment, production growth, return on investment, returns to shareholders and wealth accumulation.


“The other thing that wasn’t lost at the conference is that there’s a big disconnect between the value of the reserves in the ground right now versus what the stock market is doing,” observes Greg Barnett, head of EnerCom, a Denver-based energy investor-relations consulting practice.


He notes that, between August 2007 and August 2008, oil prices shot up 75% while natural gas prices rose 45%—but the Dow Jones and Wilshire Index for oil and gas rose only 5%. That’s a big disconnect.


“Oil and gas companies have been reporting sequential growth since the third and fourth quarters of last year—and this is what investors have been looking at,” says Barnett. “And they’ve been urging energy companies in which they own shares to manage costs, manage the top line, and that they’ll invest in those companies that do the best. Thus, companies are focused on return on investment and growth.”


Also, the liquidity for hedging is so strong right now, operators are locked up pretty well, he notes. “Take PetroQuest, for instance, where they have 12 oil hedges for 2009 between $100 and $168. That’s a great spot. On the other hand, Whiting Petroleum has very little hedged. So there’s a lot of bullish sentiment among producers.”


On the natural gas side, many producers are projecting gas prices between $8 and $10. EnerCom’s own outlook through the end of 2009 is between $8.50 and $10.50.


“For one thing, there’s a lot of gas not coming onshore the U.S. but going into Mexico, instead,” says Barnett. “Also, you don’t have gas coming down from Canada and the majors aren’t replacing gas. In addition, there’s a lot of gas waiting for infrastructure to be built.”
As far as the prominent plays in the U.S., the big focus is on the gas and oil shales—from the Barnett to the Haynesville, Huron, Utica and the Bakken—with the technological emphasis being on fracs.


Also, there are several great seismic stories, one of them being Dawson Geophysical, domestically.


The companies most attractive from a growth perspective? “XTO Energy is talking about 29% production growth in 2009; Unit is talking about upwards of 15% this year versus last. Even Petsec Energy is talking about bringing 25,000 to 30,000 barrels of oil production per day from China by 2010. So everyone has growth potential. This is a sunrise—not a sunset—industry.”


What are the buysiders looking for? “Growth and value. On the drilling side, they’re looking at whether we’ve hit some bottoms on margins and rig rates. On the E&P side, they’re talking about controlling costs, but they’re also talking about producing more.”


Separately, domestic producers have every reason to be bullish about commodity prices. Why? “You have a Democrat-controlled Congress that seems intellectually challenged about the current energy dilemma the U.S. faces.


“Then you have Republican John McCain who has finally come to terms with the idea of allowing offshore drilling—but not drilling in the Arctic National Wildlife Refuge. Meanwhile, Barak Obama believes the solution to solving the nation’s energy problems is inflating tires. At the same time, T. Boone Pickens is proposing aggressive wind-farm development.


“The fact is it’s going to take drilling, energy conservation and alternative-energy resources to bring back the supply/demand balance and lower energy prices—a scenario not likely to happen.”

?With this issue, we say goodbye, well done and Godspeed to senior financial editor Brian A. Toal. After 22 years with Oil and Gas Investor, he has elected to retire. Since 1985, Brian has been our point man for financial trends and investment news. He was the editor who first developed and nurtured our relationships with the analysts, investment bankers and institutional investors so vital to the energy industry.
His coverage of Wall Street began with trips to his beloved native city. During many an editorial planning meeting, he was quick to volunteer for another trip to Manhattan.
His love of New York and knowledge of its financial citizens were never more apparent than after 9/11, when he delivered sensitive yet masterful articles about the people who back the energy industry.
From Boston to Beijing, Brian covered E&P plays, the birth of MLPs, CEO profiles, the rise of private equity and more.
Thanks, Brian. We’ll miss your graceful writing and Irish humor, not to mention those great receptions you orchestrated every year in New Orleans during the Howard Weil conference.
—Leslie Haines, Editor-in-chief