The Five-Star Summit analyst conference, recently held in Colorado Springs, drew some 50 E&P-oriented buysiders and sellsiders from around the U.S. What they heard from the five largely Denver-based presenters-Tom Brown, Forest Oil, Western Gas Resources, Westport Resources and Ultra Petroleum-was one overriding theme: it's great today to be a gas producer, particularly in the Rocky Mountains. (For more on this theme and most of these companies, see this issue's cover story.) This message seemed to resonate with most of the attending analysts. "The Rockies is really the only growth area for natural gas in the U.S.," noted one portfolio manager for a major New York-based institutional-investment firm. "In this region, the average gas-reserve life for these producers is probably 25- to 40 years and their drilling success rate, more than 95%. "If these operators are able to move ahead with their Rockies drilling, their valuations will improve in the market," she contends. Another buysider present, Vincent B. Rudisell, chief investment officer and treasurer, Hershey Trust Co., in Hershey, Pennsylvania, said that Rockies producers appear to be surprisingly overlooked by portfolio managers. "While overall U.S. gas production declined last year, the Rockies showed real production growth-and [drilling and completion] technology is increasing the ability of producers here to grow reserves." Rudisell believes the previous per-share earnings volatility of natural gas producers is being replaced by more normalized, steady earnings streams. "And as investors gain confidence in the natural-gas sector, the upside potential of Rockies E&P companies [will become] quite compelling to them." Michael S. Scialla, Denver-based oil and gas analyst for A.G. Edwards & Sons, found Ultra Petroleum to be the conference's most compelling growth story. During the past five years, this operator, focused on the Pinedale Anticline and Jonah Field in Wyoming's Greater Green River Basin, has built reserves at a compound annual growth rate (CAGR) of 100%; production, at a CAGR of 54%. "We see this stock eventually trading up to the mid- to upper teens." Scialla was also impressed with the Tom Brown and Western Gas Resources stories. "As much as we like the Rockies, Tom Brown's recent acquisition of Matador Petroleum diversifies its asset base-from 85% Rockies gas to 60%," he says. "Also, there's more gas potential in Matador's East Texas assets than has been recognized." Western Gas Resources' overall integration gives it an advantage over its pure E&P competitors, the analyst asserts. "Western's upstream entry into the Pinedale Anticline started with its midstream assets. In addition, those assets give Western firm gas-takeaway capacity out of the Rockies and allow it to receive a Midcontinent price for its gas." Greg L. McMichael, another Denver-based E&P analyst for A.G. Edwards & Sons, believes the strengths of Westport Resources and Forest Oil are to be found in its people. "Don Wolf, Westport's chairman, is a very experienced manager of oil and gas properties and has built a lot of companies throughout the years. In the case of Forest Oil, its president Craig Clark is making that company better through lowering G&A costs and lease-operating expenses." Indeed, Raymond J. Deacon, equity research analyst for First Albany Corp. in Denver, points out that within the past year Forest has reduced lease-operating expenses from $1.35 per thousand cubic feet to under $1. He also notes the company has promoted out interests in a lot of its exploration plays this year. "It basically has the opportunity to benefit from about $60- to $70 million worth of exploration capex for just about no cost." McMichael, however, believes that both Westport and Forest could create more value for shareholders by being less diversified-by focusing more on North American core competencies. In Forest's case, that would mean shedding its international operations. Westport and Forest, on the other hand, see broad diversification as a strength. "I believe in balance and optionality as to where we allocate capital," says Wolf. Adds Forest chairman Robert S. Boswell, "Our strategy is to build a diverse portfolio of assets-much as an investor would do-with various levels of risk and returns." We, too, tend to come down on the side of diversity, given past industry cycles.