Seeking Alpha
SA's VP content, editor in chief
Profile| Send Message|
( followers)  
Annotated article summary from this weekend's Barron's; receive all our Barron's summaries by signing up here:

INTERVIEW: The Big Question for Big Oil: Where to Invest? by Sandra Ward

Summary: Barron's interviews Art Smith, head of John S. Herold energy research firm. Some key points:

  • Big companies have essentially stopped exploration, using profits for stock-buybacks and dividends. Eventually large companies will start pursuing those companies that hold undeveloped reserves and require capital.
  • Natural gas prices are low in comparison to oil. Among the most undervalued companies: Anadarko Petroleum Corp. (NYSE:APC), Chesapeake Energy Corp. (NYSE:CHK), Apache Corp. (NYSE:APA), EnCana Corp. (NYSE:ECA) and Canadian Natural Resources Ltd. (NYSE:CNQ).
  • He's 'crazy' about oil-sands reserves, and is 'absolutely convinced' big players Suncor Energy Inc. (NYSE:SU) and Nexen Inc. (NXY) will be acquired by big companies. "Buy some and put it in your kids' or your grandkids' account and just forget about it."
  • He recommends writing covered calls on cheap stocks, specifically ConocoPhillips (NYSE:COP) and Royal Dutch Shell (NYSE:RDS.A).
  • There is a re-emergence of the master limited partnership [MLP]. Upstream companies that stand to benefit from the cost-depletion tax advantage: Linn Energy LLC (NASDAQ:LINE), EV Energy Partners (NASDAQ:EVEP), Kinder Morgan Energy Partners L.P. (NYSE:KMP), Enterprise Products Partners L.P. (NYSE:EPD) and Plains All American Pipeline L.P. (NYSE:PAA).
  • Oil prices (NYSEARCA:USO): "I'm in the camp that says we could easily have $80 oil this year."
Related Links: Oil Move Overzealous, But That's the Way the Barrel RollsCrude's Downtrend Remains IntactPositive Momentum for Energy Majors

Source: Barron's: Oil Guru Art Smith's Picks for 2007