An Update on the Energy Patch

I just returned from an Energy conference in New Orleans and wrote a little on it in this post here.

It seems that investors are waiting for three events before deciding whether to invest in these stocks in 2009.

First, to state the obvious, most institutional investors are waiting for the price of the commodity to stabilize, fearful of how far it will fall before a bottom is reached.

They also appear to be waiting until after the final round of exploration and production companies set capital budgets for 2009. While a decline in spending is discounted in the shares of the services and drilling companies, there is concern about how much more will be cut.

Also, many exploration and production companies will be forced to value reserves at the end of 2008 using a lower price deck than expected. This will cause reserve writedowns at many of these companies. Since "proving" up reserves is the main business model for many, this will also be a painful adjustment.

Comments

[jepittman:]

Well I just got back from a trip to the hinterlands in a small southern state and I can report the gobs (good ole boys) are back in their 12 mpg pickumup trucks and are gleefully running up and down the roads again. With gasoline back to $1.50 a gallon it won't be long before demand is back 'up t' snuff as they say 'round here. Your investors should be eyeing their favorite oil stocks for entry points over the next few months if my scoutin' is any indication.

2008 Dec 23 10:45 PM