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:
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- 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 (LINE), EV Energy Partners (NASDAQ:EVEP-OLD), 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."