They've been looking at the sweet 16
Posted: Mon Jan 24, 2011 11:45 am
Stop chasing energy co. growth -Tudor Pickering 01/18 02:33 PM
* Investors, companies need to focus more on returns
* E&P growth now coming at expense of returns
* Top companies include Brigham, Occidental
* Bottom companies include Chesapeake, EXCO (Adds researcher's comments, other details)
By Anna Driver
HOUSTON, Jan 18 (Reuters) - Investors need to stop rewarding oil and gas companies for chasing growth, a pursuit that worked in the past but is now consuming too much capital, analysts at Tudor Pickering Holt & Co said in a self-described "manifesto" on Tuesday.
Instead, the focus should be on capital efficiency, returns and margins, the Houston-based investment bank and research firm said.
"What we want is a shift in the investor and company mind-set to not just chase growth anymore," David Heikkinen, head of research at Tudor Pickering, said.
While noting that exploration spending in recent years has uncovered vast reserves of natural gas, the firm cautioned the business continues to consume too much capital and in many instances destroys value in the pursuit of growth.
U.S. oil and gas companies spent heavily to lease acreage and drill for natural gas when those prices soared to double digits in 2008. Now hefty supplies are weighing on prices and many producers are now in a race to find oil.
"The business has changed and the cycle has changed," Heikkinen said, adding that heavy spending on oil exploration will not guarantee better returns.
As a result, Tudor Pickering is now using new measures to rate oil and gas companies.
The firm's model favors companies that demonstrate the ability to make money at current oil and gas prices, focus on margins and costs, invest in high-return projects and treat reserve and production growth as an outcome, not a target.
The firm's top companies using its new measures are Brigham Exploration Co (BEXP:$25.10,00$-0.669,0-2.60%) , Occidental Petroleum Co , Oasis Petroleum Inc (OAS:$27.8400,$0.4900,1.79%) , Carrizo Oil & Gas Inc (CRZO:$32.3099,$1.0599,3.39%) and Continental Resources Inc.
Tudor Pickering's bottom five companies are Southern Pacific Resource Corp (STPJF:$1.7264,$-0.0436,-2.46%) , Stone Energy Corp (SGY:$22.60,00$0.4400,1.99%) , EXCO Resources Inc XCO.N>, Goodrich Petroleum Corp (GDP:$19.9400,$0.6600,3.42%) and Chesapeake Energy (CHK:$28.05,00$0.2500,0.90%) .
Still, Heikkinen noted that Chesapeake, which has shifted its business model toward oil exploration, has the potential to improve going forward.
* Investors, companies need to focus more on returns
* E&P growth now coming at expense of returns
* Top companies include Brigham, Occidental
* Bottom companies include Chesapeake, EXCO (Adds researcher's comments, other details)
By Anna Driver
HOUSTON, Jan 18 (Reuters) - Investors need to stop rewarding oil and gas companies for chasing growth, a pursuit that worked in the past but is now consuming too much capital, analysts at Tudor Pickering Holt & Co said in a self-described "manifesto" on Tuesday.
Instead, the focus should be on capital efficiency, returns and margins, the Houston-based investment bank and research firm said.
"What we want is a shift in the investor and company mind-set to not just chase growth anymore," David Heikkinen, head of research at Tudor Pickering, said.
While noting that exploration spending in recent years has uncovered vast reserves of natural gas, the firm cautioned the business continues to consume too much capital and in many instances destroys value in the pursuit of growth.
U.S. oil and gas companies spent heavily to lease acreage and drill for natural gas when those prices soared to double digits in 2008. Now hefty supplies are weighing on prices and many producers are now in a race to find oil.
"The business has changed and the cycle has changed," Heikkinen said, adding that heavy spending on oil exploration will not guarantee better returns.
As a result, Tudor Pickering is now using new measures to rate oil and gas companies.
The firm's model favors companies that demonstrate the ability to make money at current oil and gas prices, focus on margins and costs, invest in high-return projects and treat reserve and production growth as an outcome, not a target.
The firm's top companies using its new measures are Brigham Exploration Co (BEXP:$25.10,00$-0.669,0-2.60%) , Occidental Petroleum Co , Oasis Petroleum Inc (OAS:$27.8400,$0.4900,1.79%) , Carrizo Oil & Gas Inc (CRZO:$32.3099,$1.0599,3.39%) and Continental Resources Inc.
Tudor Pickering's bottom five companies are Southern Pacific Resource Corp (STPJF:$1.7264,$-0.0436,-2.46%) , Stone Energy Corp (SGY:$22.60,00$0.4400,1.99%) , EXCO Resources Inc XCO.N>, Goodrich Petroleum Corp (GDP:$19.9400,$0.6600,3.42%) and Chesapeake Energy (CHK:$28.05,00$0.2500,0.90%) .
Still, Heikkinen noted that Chesapeake, which has shifted its business model toward oil exploration, has the potential to improve going forward.