TheResearch Magazine Guide to

a Research: Investing Guide
I n P a r t n e r s h ip W i t h
The INDEPENDENT PETROLEUM
ASSOCIATION OF AMERICA
The Research Magazine Guide to
OIL
&GAS
INVESTING
2008
Supplement
to
Research: Magazine
Questar Corporation
Investor Fact Sheet March 2008
Clean Energy for America
Questar offers a lower-risk way to invest in the strong, environmentally friendly, fundamentals of natural gas. Our primary growth
drivers are gas and oil exploration and production and gas-gathering and processing services. These businesses provide the potential
for better growth and higher returns than regulated operations. Questar’s regulated businesses — interstate natural gas transportation
and storage and retail gas distribution — provide stable earnings that are less sensitive to commodity prices.
> Share Highlights (at 1/31/08)
Ticker ...................................... STR (NYSE)
Price ............................................... $50.91
52-week range.................. $39.67 - $58.75
Annual dividend ................................ $0.49
Enterprise value ........................ $9.8 billion
12 mo. avg. diluted shares ..... 175.7 million
QUESTAR CORPORATION is headquartered in Salt Lake City, Utah with four major lines of business conducted through three
principal subsidiaries — Questar Market Resources (gas and oil exploration, development and production; gas gathering and
processing); Questar Pipeline (interstate gas transportation and storage); and Questar Gas (retail gas distribution).
> QUESTAR MARKET RESOURCES is Questar’s primary growth driver. Through four principal subsidiaries our goal is to
achieve long-term double-digit production and net-income growth through a disciplined, return-focused “acquire-and-exploit”
strategy.
• Questar Exploration and Production (QEP) acquires, explores for, develops and produces gas and oil in the Rocky Mountains and
Midcontinent region.
• Wexpro manages, develops and produces cost-of-service reserves for Questar Gas.
• Questar Gas Management provides gas-gathering and processing services, primarily in the Rockies.
• Questar Energy Trading sells our own and third-party gas and oil, provides risk-management services and owns and operates a
natural gas storage facility.
> QUESTAR PIPELINE operates a 2,634 mile interstate pipeline that transports natural gas in Utah, Wyoming and Colorado
and owns and operates gas-storage facilities in Utah and Wyoming. Questar Pipeline also owns and operates the Southern Trails
Pipeline, which extends from the Four Corners area to the California state line, and the Questar Overthrust Pipeline in southwestern
Wyoming. We are capitalizing on strong regional production growth by expanding and extending our pipeline system.
> QUESTAR GAS provides retail gas-distribution service to more than 874,000 customers in Utah, southwestern Wyoming and a
small portion of southeastern Idaho. Our 2007 3 percent customer-growth rate ranks among the highest in the country.
Questar Stock Price
Annual Dividend
$ Per Share, Year-End
54.10
$ Per Share
.45
.47
.49
Net Income TTM 9/07 $498 million
$ Millions
.43
.39
Questar Market Resources $410
41.53
37.85
82%
Questar Gas $37
17.58
03
2%
04
Questar Pipeline $45
7%
25.48
YEAR
9%
05
06
07
YEAR
03
04
05
06
07
Other $6
This Investor Fact Sheet is paid advertisement prepared by the subject company. It has not
been reviewed for accuracy by Research magazine, which does not endorse or recommend
securities. Research magazine receives a fee for distributing this Investor Fact Sheet.
To order copies of this Fact Sheet, call (800) 458-2700.
- Questar Corporation Investor Fact Sheet March 2008 -
Clean Energy for America
• Over 1.6 million net leasehold acres in the Rockies and Midcontinent
• 10 years of compound annual double-digit reserves and production growth
• Industry-leading finding and development costs
• 33% five-year annual return to shareholders
Our strategies reflect our focus on risk,
returns and the Rockies
• Focus on returns on capital
• Grow reserves and production efficiently
• Hedge to protect margins and returns
• Build midstream hubs in our core Rockies basins
• Expand and extend our Rockies pipeline
• Build a culture of innovation and execution
Rockies
• Maintain a strong balance sheet
Midcontinent
We’re growing reserves and production
with the drill bit
Reserves Year-End 2006
Bcfe
2006 Production
Bcfe
Bcfe
150
1,631
QEP Proved Reserves (Bcfe)*
10-year CAGR: 13%
130
QEP Rockies
1,322 Bcfe
QEP
Midcontinent
309 Bcfe
Wexpro
647 Bcfe
QEP Rockies
82.9 Bcfe
QEP
Midcontinent
46.7 Bcfe
Wexpro
40.9 Bcfe
146-150
Bcfe
1,600
1,480
136-137
130
1,200
110
800
90
QEP Production (Bcfe)*
10-year CAGR: 10%
70
400
*excludes Wexpro
0
50
'96
'97
'98
'99
'00
'01
'02
'03
'04
'05
'06 '07E '08E
ENVIRONMENTAL IMPACT
Questar is committed to safeguarding our environment while providing for our energy future.
Questar makes efficient use of resources to minimize our carbon footprint and conserve habitat diversity of plant and animal life.
ENERGY CONSERVATION
ThermWiseSM is a highly successful Questar Gas-sponsored program to encourage customer conservation.
HEALTH & SAFETY
Questar is dedicated to the health and safety of all employees and communities impacted by our operations.
COMMUNITY INVOLVEMENT
Questar employee volunteers donate thousands of hours of their own time to serve a growing number of organizations and causes.
In 2007, more than 750 Questar volunteers, family members and friends dedicated more than 7,000 hours to a
variety of causes in their communities.
The Research Magazine Guide to
Research
OIL Research
&GAS
MARCH 2OO8
Winner of the NYSSCPA Award for
Excellence in Financial Journalism
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Wall Street Editor
Contributing Editors
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INVESTING
2008
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The Independent Petroleum Association of America
6
Independents Will
Rise to the Challenge
As the demand for oil and natural gas continues to rise
in the United States and abroad, independent U.S.
producers are investing and re-investing to boost output.
By Bill Moyer, Vice President of Capital Markets, IPAA
10
Optimistic Outlook
Equity analysts say that, beyond the headlines,
there are some strong fundamentals that could keep oil
and gas prices in their higher bands — and that bodes
well for independent oil and gas producers this year.
By Clifton Linton
17
IPAA Publicly Traded Exploration
& Production Companies
A list of some 140 companies, their ticker symbols,
market capitalization and trading volumes.
RESEARCH: Guide to Oil & Gas Investing
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Cimarex
Energy Co.
We focus on achieving consistent profitable
growth in oil and gas production and
reserves by investing in exploration and
development drilling.
We have integrated teams of geologists,
geophysicists, engineers and land
professionals in our core Mid-Continent,
Permian and Gulf Coast regions. These
teams who gener­ate and execute our
exploration and development drilling drive
our growth.
Proved Reserves (YE 2006) 1.5 Tcfe (75% Gas)
Production (Q3 2007)
448 MMcfe/d
Focused on drilling.
Built for growth.
For more information
visit our website at
www.cimarex.com.
A U.S. Exploration and Production Company
To order copies of this Fact Sheet, call (800) 458-2700. This Investor Fact Sheet is a paid advertisement prepared by the subject company. It has not been reviewed for accuracy
by Research magazine, which does not endorse or recommend securities. Research receives a fee for distributing this Investor Fact Sheet.
2008 Research Guide to
Oil & Gas Investing
By BILL MOYER
Vice President of Capital Markets, Independent Petroleum Association of America (IPAA)
Independents Will Rise
to the Challenge
As the demand for oil and natural gas continues to rise in the United States and abroad,
independent U.S. producers are investing and re-investing to boost output.
A
mericans are demanding more energy than ever
to fuel their way of life. As this demand increases,
already tight supplies of oil and natural gas constrict
even further. This is especially true in regard to America’s
available resources, which are limited due to restrictive U.S.
policies that prevent adequate exploration and production.
Despite the de-linkage of oil prices and natural gas prices,
natural gas continues to outpace oil as the primary target
for American development drilling, and an estimated record
7,085 natural gas wells were completed in the first quarter
of 2007.
Although record numbers of wells are being drilled, total
production continues to fall in contrast to drilling activity.
According to a recent National Petroleum Council Study, the
production decline rate has doubled since 1992. After 1988,
a shift took place in the United States with a preference toward natural gas-directed drilling. Now, over 83 percent of
rig activity is targeting natural gas — based on access to
available reserves, prices, American market predictability
and technological expertise.
The American oil and natural gas industry that explores and
produces energy for the United States is made up of thousands
of independent businesses operating offshore and in more than
30 states. While these independents generally employ fewer
than 20 employees on average, they collectively represent the
backbone of America’s oil and natural gas supply.
At home, independents develop 90 percent of the nation’s
wells, and they account for 68 percent of U.S. oil and 82 percent of U.S. natural gas. These percentages are not likely to
alter, making this supply group a critical player in the nation’s
economy and security.
The capital challenges to both maintaining and increasing
American oil and natural gas production are significant. The
National Petroleum Council estimated in 1999 that upstream
capital investment must increase by about $10 billion annually
to meet future demand — roughly a 30 percent increase over
RESEARCH: Guide to Oil & Gas Investing
1990s capital investment. But meeting this challenge requires
access to capital in order to cope with the increasing costs
involved with finding and developing these resources.
As costs to find and develop oil and gas resources increase,
American independent oil and gas companies continue to invest and re-invest their income into the United States. Analysis
done by John S. Herold, Inc., concluded that in 2004 the top 50
independent producers were reinvesting 150 percent of their
American cash flow back into American projects — and were
even borrowing money to invest more into the United States.
It defies logic that there are currently several energy bills
circulating the halls of Congress that would discourage new
American investments in oil and natural gas. With oil prices
flirting at $100 a barrel and strong industry earnings, political
agendas are driven by emotional-based reactions, not logical reasoning. Congress is unwilling to accept market forces
and simple supply-vs.-demand rationale as an explanation.
Enacting policies that discourage oil and gas development
or take away needed capital will only do harm by forcing the
American oil and natural gas production industry to scale back
its domestic investment in exploration, while increasing our
reliance on imported oil.
In the 1980s, the Windfall Profits Tax extracted some $39
billion from the industry that otherwise could have been invested in more production. It reduced American oil production
from 1.2 percent to 8.0 percent, and dependence on imported
oil grew from 3 percent to 13 percent.
Today, the majority party in Congress wants to use the
oil and gas industry as a cash register to fund its political
programs while simultaneously pushing proposals that will
add new barriers to the development of onshore and offshore
federal lands.
Our country’s energy focus should be on securing American energy supply, not discouraging future American energy
production. Part of that solution lies in developing all viable
energy supply solutions, including nuclear energy, hydroelec-
Creating Energy for Today.
Ensuring it for Tomorrow.
A 21st Century Energy Company
www.energyxxi.com
To order Fact Sheets for this company, call (800) 458-2700.
2008 Research Guide to
tric projects, coal, wind, oil and natural gas. But, keep in mind,
by 2030 fossil fuels are projected to account for more than
60 percent of America’s total energy mix, while renewable
sources will contribute less than 7 percent. Today, oil and
natural gas supply close to two-thirds of our nation’s energy
needs, and they will constitute the primary fuel source for the
foreseeable future.
Additionally, it is important to note the strong connection
between fossil fuels and renewable energy production. Enormous amounts of fossil fuels are used to grow and produce
crops for renewable fuels. For example, consider that natural
gas is the fuel of choice for new electricity generation, is used
in the production process for corn-based ethanol (for drying
crops and other purposes), is essential for the production of
biofuels both as a fuel and as a component of fertilizers, and
is the feedstock or process-heating source for the manufacture
of thousands of products.
World energy use is projected to grow 40 percent between
2004 and 2030. The United States, China and India together
account for nearly half of the projected growth in world petroleum use. To meet the growing world petroleum demand, the
global oil supply must increase by 35 million barrels per day
over the 2004 supply of roughly 83 million barrels per day.
Dramatic growth in China and India has been among the
most significant factors in the recent tightening of the world oil
market — accounting for about five million barrels per day of
increased demand. In China, consumption rose by 15 percent
last year and is forecast to jump by an additional 9 percent
this year. By 2025, the U.S. Energy Department predicts that
China will burn through 14.2 million barrels a day, double this
year’s level. Energy demand in India is set to double in the
next five years. As a result, India’s oil imports are expected to
rise to some five million barrels a day by 2020, from around
1.4 million barrels at present.
Supply and demand will continue to be tight and will perhaps
get tighter as demand grows in both industrialized and industrializing countries. This will result in a significant reduction in
spare oil capacity and more volatility in regard to prices.
Other supply and demand trends, noted by the Energy
Information Administration, that are worth keeping in mind
include the following:
• Projected U.S. natural gas demand should increase 20
percent by 2030.
• Projected world oil demand should increase 43 percent
by 2030.
• The U.S. currently imports over 60 percent of its
crude oil.
Independents will continue to rise to the challenge of finding and developing American oil and gas resources. Global
energy demand, geopolitical instability, price volatility and
RESEARCH: Guide to Oil & Gas Investing
Oil & Gas Investing
the demanding interplay of energy security and domestic
consumption will place the onus on American independent
producers to leverage their unique experience and technological expertise to ensure the production of American energy
resources for the future. R
Oil & Gas Investment Symposia
The Independent Petroleum Association of America’s Oil
and Gas Investment Symposia (OGIS) are the industry’s
largest financial markets events. The organization hosts
a series of symposiums annually in New York, San Francisco, London and Hollywood, Fla., which thousands of
investors, bankers, analysts, and industry insiders attend
to learn about the latest industry trends from leading
publicly traded companies. For more information on
OGIS, visit www.ipaa.org or contact Bill Moyer, IPAA’s
vice president of capital markets, at 202-857-4722 or
[email protected].
April 7–9, 2008
June 3, 2008
Oct. 6–8, 2008
February, 2009
New York
London
San Francisco
Hollywood, Fla.
Independent Oil & Gas
Industry Facts
Number of Independents
5,000
Avg. Number of Employees
12
Avg. Age of Business
23 years
Percent of U.S. Wells Drilled
90%
Operating on Federal Onshore Land
49%
Operating Internationally
11.6%
Total Independents’ Percent of U.S.
Natural Gas Production
82%
Total Independents’ Percent of U.S. Oil Production 68%
Public vs. Private Independents: Publicly traded independents account for 23% of oil and 32% of natural
gas production. Private independents account for 45%
of oil and 50% gas production.
Offshore: Offshore: Independents hold 90% of the Gulf
of Mexico leases, including 75% of deepwater leases.
At the last four lease sales, independents had the majority of high lease bids. Independents installed 87% of the
offshore structures in the Gulf of Mexico between 2000
and 2004
Source: Dept. of Energy, IPAA
This Investor Fact Sheet is a paid advertisement prepared by the subject company. It has not been reviewed for accuracy by Research magazine, which does not endorse or recommend securities. Research receives a fee for distributing this Investor Fact Sheet.
2008 Research Guide to
Oil & Gas Investing
By CLIFTON LINTON
Optimistic Outlook
Equity analysts say that, beyond the headlines, there are some strong fundamentals that
could keep oil and gas prices in their higher bands — and that bodes well for independent
oil and gas producers this year.
A
big trend in the oil and gas industry last year
was that both oil and natural gas prices seemed
to quite comfortably settle in at higher levels. By
the end of the year, crude oil finally topped the
$100 per barrel level. And since the attainment of that level,
prices have not retreated substantially.
Natural gas prices have not been as robust as oil prices,
but some analysts believe that’s about to change. In fact, a
reason they believe natural gas is poised for a rally is that
the normal spread between crude oil and natural gas prices
has widened to historic levels.
Overall, conditions for oil and gas stocks have been pretty
good, experts say, and the outlook remains fairly optimistic.
The oil and gas sector has been outperforming much of the
rest of the market for the past three to four years. In fact,
analysts note, with the rally in commodity prices, investors
didn’t need to be perfect stock pickers to do well; they just
needed to be in the right sector.
Of course, the fortunes of oil and gas stocks depend very
much on the behavior of underlying oil and gas prices. In
the past few years, it’s been a very good ride for firms that
concentrate on oil and a fairly good ride for those that concentrate on natural gas. Heading into 2008, these disparities
may start to diminish, some analysts predict, and that could
impact oil and gas stocks, including those in the exploration
and production — or E&P — field.
“We believe that while the oil/gas spread will remain
wide through the early part of 2008, there are signs that
it will converge later in the year,” explains Ben Dell, senior equity research analyst with Sanford Bernstein & Co.,
which is part of AllianceBernstein, in a recent report. “Convergence between the oil and gas price can theoretically be
driven by improving gas fundamentals, weakening crude
fundamentals or both. Looking through 2008, there is considerable reason to believe that a combination of these is
likely to occur …”
Oil market analysts frequently compare crude oil and
10
RESEARCH: Guide to Oil & Gas Investing
natural gas on a Btu, or British thermal unit, basis. “The key
impetus to the 2007 divergence was the growing oil/gas spread.
As is well established, natural gas and oil have a Btu parity
of 6:1 and, while not perfect, have traded at a ratio of 8.5:1
since deregulation in 1990, and at a ratio of 7:1 over the last
10 years. However, as of December the ratio was back to
historical highs with the 12-month strips trading at 11.6:1,
up from 7.5:1 at the beginning of the year. The significance of
this for the energy space is two-fold. Not only does the commodity drive the earnings power and cash flow growth of the
E&Ps, but the change in cash flow generation of the upstream
players is the predominant driver of service and rig demand,”
according to Dell.
“In the E&Ps, the widening spread meant oil-leveraged
names grew earnings per share and [cash flow per share or]
CFPS quicker, driving upward revisions to numbers. Excluding company specific stories such as Talisman Energy, this
also demonstrated a strong correlation to share price performance with Apache, Murphy Oil and Occidental performing
the best. In contrast, gas names performed relatively poorly,”
the analyst adds.
Commodities typically experience boom and bust cycles. A
scarcity of product drives prices up, which curbs demand, but
also spurs investment in additional production. The resulting
production hits the market and prices, in turn, subside. The
availability of cheap supplies spurs additional consumption,
which soaks up the new supply. Eventually the surplus is
consumed, the market again sees a scarcity, and the cycle
starts all over again. Certainly, this has been true with natural
gas, but less so with crude oil of late.
This cycle has been more noticeable recently with natural
gas than with crude oil, which seems to only move higher. In
the E&P space, natural gas has passed its price and demand
peaks, while the debate continues to rage whether crude oil
prices have hit their pinnacle.
Regardless, few analysts look for a substantial decline in
either natural gas or crude oil prices in the coming few years.
2008 Research Guide to
Worldwide, especially in countries like China and India, there
continues to be growing demand for hydrocarbons used to
power transportation, heating and utility generation. Hence a
number of analysts are calling for investors to overweight oil
and gas stocks in their portfolio.
Crude Oil & Its Fortunes
A major news headline of 2007 focused on crude-oil futures
prices hitting the $100 a barrel level in December. But, for the
oil patch, the big news was that crude oil prices held above
$70 a barrel for six months.
The $100 per barrel level seems to be more symbolic than
anything, notes Tina Vital, an oil and gas equity analyst with
Standard and Poor’s equity research service.
While ongoing tensions in the Middle East are a factor
pushing prices higher, Vital says, world inventories fell through
the middle of 2007, and that also played an important role in
pricing increases.
As oil prices have been able to sustain higher levels, investors may look for new production projects as a home for their
cash. But, finding some of these projects can be a challenge.
It’s worth noting that Vital expects crude oil prices to remain
above $70 per barrel through 2015.
This sector faces two challenges. The first is finding new
Oil & Gas Investing
sources of supply that can be easily extracted. The world is
not running out of oil; it’s just that most of the low-hanging
fruit has been picked. More of the exploration projects that
are likely to yield substantial barrels are in tough-to-reach
places, such as the Artic or in deep water. If prices reach a
high enough level, it will eventually become economical to
tap some of these sources.
Still, bringing some of these projects to fruition requires
a long-term commitment. Many oil and gas drilling projects
in the deep water Gulf of Mexico are finally starting to reach
full production, nearly five years later than expected, according to Vital.
Oil and gas companies have been able to easily access
the credit markets, analysts observe. As firms develop strong
cash flow, it has been rather easy for them to borrow money
at reasonable interest rates.
The second challenge, the increasing nationalization of
oil resources across the globe, may be more difficult to surmount. There are still some reserves that are easy to tap,
yet they are often located in countries where the national
government wants a larger slice of the pie. Governments in
resource-rich areas are increasingly aware of the value of
their commodity holdings and want top-dollar for the rights
to extract oil. More and more governments are also raising
$74.20 est
$70.00 est
$70.00 est
$72.50 est
$72.50 est
$66.10
$56.60
$80
$70
$60
$50
$40
$30
2012
2011
2010
2009
2008
2007
2006
$20
2005
2004 $42.50
2003 $30.60
Oil ($ per barrel)
$72.50 est
Pricing Picture 2003-2012 Oil and gas target prices, actual and estimates
$10
0
$9.30 est
$9
$8
$7
2012
$8.80 est
2011
$8.80 est
2010
$7.80 est
2009
2008
$7.40 est
2007
$6.70
2006
$8.90
2005
2004 $42.50
2003 $5.50
Gas ($ per thousand cubic feet)
$7.80 est
$10
$6
$5
Source: Alliance Bernstein, January 2008
RESEARCH: Guide to Oil & Gas Investing
11
2008 Research Guide to
Oil & Gas Investing
2006
83%
2%
015 est.
72%
, 2006
13%
29%
%
2015 est.
14%
%
%
36%
taxes on oil companies, Vital notes.
The Natural Gas Story
At the same time, the world is focusing more on envi- The picture for natural gas is fine, but not quite as rosy, notes
ronmental issues associated with oil and gas development. Andrews of Raymond James. A rally in natural gas prices
Some countries are starting to create environmental review at the beginning of the decade ostensibly kicked off a bull
processes. In the United States, the cost for applying for an market in energy values that has persisted. But, the natural
environmental permit is rising, and these permits are increas- gas rally appeared to top out in 2005, when the market saw
ingly difficult to obtain.
$10 per million cubic feet and robust supplies. Over
A likely scenario going forward
the past few years, the market has been working off that
Natural Gas Supply, 2006
Gas are
Supply,
2015
est.
is that new production projects will
surplus. So, supplyNatural
and demand
starting
to balance
have to be developed with an eye
each other out.
Canada
toward minimizing the carbon LNG
That’s one reason why, inCanada
2008, a number of analysts
15%
12%
2%
footprint, says Vital. She believes
expect natural gas to seeLNG
a revival. Gil Yang, an ana16%Markets, points out, “E&P
that green projects will eventually
lyst with Citigroup Global
face not only lower political costs,
companies
with
significant
natural gas
exposure will be
Dry Gas
Dry Gas
but lower development costs. But,
attractive as the risks to the downside
for natural gas
Production
Production
83%
72%
these projects will take time to deprices are likely to be lower than the market expects,
velop. “We need to have scientists
while significant upside exists.”
SOURCE:
Citigroup, January 2008
and engineers active in the planIn other words, natural gas prices, given their current
ning of our energy future,” she explains.
relative weakness to crude oil, are
In the face of such challenges, world demand for
more likely to rally than to decline.
Gas Supply, 2006
crude Natural
oil has stayed
fairly steady. Sure, many analysts Natural Gas Supply, 2015 est. And Yang views the recent news of
note, a recession in the United States likely would curb
high natural gas inventories as a
Canada
Canada
LNG
some
oil demand,
but
the
impact
may
be
muted
in
debit of a contrarian indicator.
15%
12%
2%
veloping countries. Standard & Poors expects the U.S.
“The market has been conLNG
16%
Natural
Gas
Demand,
2006
Natural
est.of
gross domestic product to grow an average
of less
than
1
cernedGas
thatDemand,
the high2015
levels
percent in 2008, andDry
theGas
research firm looks for domestic
natural gas
inventories that hit
Dry Gas
Other
Other
Production
9% this past fall are a
gasoline demand toProduction
increase slightly. In 2008 and 8%
2009,
another record
Residential
Residential
83%
72%
global oil demand should
increase as world vehicle fleets 20%
potentially bearish20%
indictor,” he
also swell, according to Vital.
says.
“However,
as
we
have seen
Electric Power/
SOURCE:
Commercial
Electric Power/
Commercial
Citigroup, January 2008 in
Going forward, oil prices are expected toUtilities
average $90
the
past
several
years,
high in13%
Utilities
14%
29%
per barrel in 2008, says Wayne Andrews, managing
director, ventories of natural gas have been
commonplace
with
peak
36%
Industrial
Industrial
energy equity research with Raymond James & Associates.
inventories on a steady market toward higher highs since 2000.
30%
21%
Stephen Leeb, chief investment officer with Leeb Capital Rather than being bearish indicators of oversupply, we believe
Management, maintains a bullish outlook for crude oil. And that record inventories are a signal that buyers are seeking
while he acknowledges that the United States and other de- supply reliability and are willing to incentivize growing supply
veloped nations may see a decline in energy demand in the through high prices.”
Natural
Gas
Demand,
2006
Natural
Gas
2015there
est. are signs that natural gas demand
coming
year, oil
demand
in developing
countries is likely
to
But,Demand,
going forward,
remain strong. Other
is likely
Otherto surge, and that means prices should get a boost
8% prices, developed nations will seek ways
9%Yang is calling for natural gas prices to average $7
Faced with higher
as
well.
Residential
Residential
to conserve and reduce their
per thousand 20%
cubic feet (or mcf) in 2008 and $7.50 per mcf
20% appetite for crude oil, Leeb says.
Developing
nations, which currently account for 50 percent of in 2009.
Electric Power/
Commercial
Electric Power/
Commercial
Utilities production “won’t be able to conserve. Their
global economic
Natural gas prices
13%
Utilities
14% are more dependent on the weather
29%
36% crude oil prices are. And in the United States, a big
demand will increase and encourage growth of energy demand than
Industrial
Industrial
worldwide,” he adds.
weather trend
30%
21%— the drought in the Southeast — may have
And here’s the upshot: This increase in demand could be a hand in pushing prices higher. The reason? Local nuclear
hitting at a time when the challenges of finding new reserves power plants that consume huge quantities of lake and river
are rising. Hence, oil prices are likely to remain high.
water may have to shut down, because these water sources
The clear winners in this group will be the firms that have have been drying up. The Associated Press reported in late
strong reserves and are low-cost producers, Vital points out. January that local nuclear power plants could be forced to
12
RESEARCH: Guide to Oil & Gas Investing
2008 Research Guide to Oil & Gas Investing
American Oil & Gas Inc. (AMEX: AEZ) is a Denver,
Colorado based energy company focused on Rocky
Mountain oil and gas exploration and production.
hLarge ownership in large acreage positions (over 350,000 gross acres)
support many years of multi-well drilling programs.
hFocusing in areas where oil and gas has already been discovered.
hApplying new/advanced drilling, completion
and stimulation technologies to significantly
enhance production.
hAlways focused on increasing
shareholder value.
Corporate Offices
Independence Plaza h 1050 17th Street, Suite 2400 h Denver, CO 80265
Phone: 303-991-0173 h Fax: 303-595-0709
To order Fact Sheets FROM THese COMPANies, please call (800) 458-2700
ENERGY
MDU Resources Group, Inc.
®
CONSTRUCTION MATERIALS
MDU Resources Group, Inc., a member of the S&P MidCap 400 index, provides
value-added natural resource products and related services that are essential
to energy and transportation infrastructure, operating in three core lines of
business: energy, construction materials and utility resources. MDU Resources
includes natural gas and oil production, natural gas pipelines and energy
services, construction materials and contracting, construction services, and
electric and natural gas utilities.
UTILITY RESOURCES
Construction Materials
Utility Resources
Company Information: www.mdu.com
RESEARCH: Guide to Oil & Gas Investing
13
13%
LNG
2%
29%
Dryto
Gas
2008 Research GuideProduction
83%
015 est.
14%
%
Canada
15%
36%
Canada
12%
LNG
16%
Oil & Gas Investing
Dry Gas
Production
72%
run at reduced rates or shut down temporarily due to the apeake Energy Corp., Ultra Petroleum Corp. and Range
lack of water for cooling. One result of such a development Resources Corp.
would be the need for local utilities to purchase electricity
The outlook for integrated oil companies, which often influon the open market. These purchases could be up to 10 ence the performance of other oil and gas sectors, is equally
2006
Gas Supply, 2015 est.
timesNatural
greater Gas
than Supply,
what it costs
to produce electricityNatural
in a strong,
analysts note. Like E&P firms, these large firms have
nuclear plant.
posted strong performance on the heels of commodity price
Canada
Canada
LNG
How does15%
that affect the natugains, and going forward they are expected to remain
12%
2%
ral gas market? Many of the power
strong performers. Currently they have strong cash flow,
LNG
2006 as well, and that’s Natural
2015 est.
plants that sell electricity into the Natural Gas Demand,16%
a source Gas
of joyDemand,
to shareholders.
open market are fueled
by natural
Thomas
president with Moody’s
Other
Other
Dry Gas
Dry
Gas Coleman, senior vice
8%
9%
Production
gas, and they willProduction
likely provide
Investors
Services
had
the
following
to say about the
Residential
Residential
83%
72%
20%
20%
the kilowatts that the South desgroup in a recent report: “The major integrated
peer
perately needs over the summer to Electric Power/
group
remains
one
of
the
highest
rated
in
the
industrial
Commercial
Electric Power/
Commercial
Utilities
run air conditioning.
sector, and has been for many
years through successive
13%
Utilities
14%
29%
36%
The story is similar in the
waves of industry consolidation.”
Industrial
Industrial
global market, where demand for
While Moody’s is largely a debt21%
rating service,
30%
natural gas to fuel electric generColeman
touched
on
issues
that
highlight
their stock
SOURCE:
Citigroup, January 2008
ators could be on the rise. That’s
performance. “The majors’ principal rating supports
because several key nuclear plants in Japan and the
are their large and diversified
United Kingdom are down. In January, British-utility
asset bases and operational
Natural
Gas
Demand,that
2006
British
Energy
announced
four nuclear reactors Natural Gas Demand, 2015 est. integration, strong cash flows
that have beenOther
out of service since October 2006 due
and internal funding of capital
Other
8% are likely to remain offline until
9%
to safety concerns
spending, and a trend of large
Residential
Residential
at least the second half
of 2008.
free cash flow. It is equally
20%
20%
Thus,
clear, however, that reserve
Electricnatural
Power/ gas-fueled electric generation may
Commercial
Electric Power/
Commercial
have toUtilities
pick up the slack13%
for the entire year. Citireplacement and production
Utilities
14%
29%
36%
group’s Yang estimates that the loss of these plants
growth are becoming costlier
Industrial
Industrial
will increase the U.K.’s
and more difficult to achieve,”
30% annual natural gas demand
21%
by 130 billion cubic feet.
he adds.
SOURCE:
Citigroup, January 2008
In Japan, the Kashiwazaki-Kariwa nuclear power
And he further observed that
plant, the world’s largest, remains shut following damage suf- few of the large integrated oil companies are pursing growth
fered in an earthquake that hit in July 2007. With the plant for growth’s sake, rather they are emphasizing shareholder
fairly close to a fault line, concerns continue to grow about returns. “The primacy of shareholder returns, combined
the viability of restarting its operations. Japan’s natural gas with increasingly restricted access to the most prolific new
demand could increase about 0.75 billion cubic feet per day resources, has led to rising shareholder payouts, with these
“potentially through the rest of 2008 and longer,” according companies investing only about 50 percent of their cash flow
to Yang.
back in the business,” he says.
The stage appears to be set for a rally in natural gas both
The question is whether integrated oil companies will stick
domestically and globally. Yang’s top picks are Anadarko Pe- with their current model or shift to a new one, perhaps one
troleum Corp. and Quicksilver Resources.
that emphasizes fuel production without tapping the ground.
Raymond James analyst Wayne Andrews, though, is less This group’s strategy, analysts note, is closely followed by other
optimistic. He sees natural gas prices averaging about $6.50 industry players, such as those in the E&P space.
per thousand cubic feet (mcf) in 2008, and he believes that
Dell of Bernstein Research notes, “The evolution of the
U.S. consumption is not rising as fast as production. The strategies of the integrateds will be a key theme in 2008 as
additional natural gas supply, he notes, is coming from coal companies test new business models to position themselves for
bed methane and through the use of techniques such as the longer term, such as second- generation biofuels, joint venhorizontal drilling.
tures, niche acquisitions and retail divestments. Gas outside
That said, he does note that opportunities abound for North America will also be topical, as tight LNG conditions
quality natural gas firms. Some of his picks include Ches- in Asia and concerns over the ability of Gazprom to supply an
14
RESEARCH: Guide to Oil & Gas Investing
2008 Research Guide to Oil & Gas Investing
To order Fact Sheets FROM THese COMPANies, please call (800) 458-2700
• DiversifiedExploitation,
Developmentand
ExplorationProject
Inventory
Continuing Growth
• 1+MillionLeasehold
Acres
Strategies That Make Sense
NASDAQ: TXCO
www.txco.com
• StackedOilandGas
ResourcePlays
RESEARCH: Guide to Oil & Gas Investing
15
2008 Research Guide to
expanding Europe will support the LNG price linkage with oil.”
Bernstein’s top picks include Statoil, Shell and Total.
One of the advantages that the large majors have is that
many of their U.S. refineries, which of late have been strong
contributors to the bottom line, are able to process increasingly less desirable crude oils. Typically, a refinery is built
to process a specific grade of crude oil. In the United States,
many oil companies decided years ago to reconfigure their
plants to accommodate a broader spectrum of feedstocks.
Oil & Gas Investing
For years the cost of these projects appeared to be nothing
more than a financial millstone for refiners. But, as supplies
of more desirable and easy to refine crudes dwindled, those
investments have proven to be far sighted. The refiners have
the capability to process less desirable crudes and make a
good buck at the same time.
The rest of the world doesn’t yet have the same refinery
feedstock flexibility, analysts note.
Spin-Offs, M&As
Strength
in Numbers.
At RAM Energy Resources, our vision is to build
shareholder value through a balanced strategy of growth.
Through our acquisition of Ascent Energy, we’ve virtually
doubled our reserve base and production, raising proved
reserves to 38 million BOE and daily production to 7,000 BOE
in areas that complement many of our existing operations.
To fuel future growth, we also have more than 110,000 net
undeveloped acres, including 70,000 net acres in several
of the most sought after unconventional shale plays.
Strength in numbers.
Just one reason RAM Energy Resources
is driven to be the best of its breed.
16
RESEARCH: Guide to Oil & Gas Investing
A recent development that has
helped many oil and gas firms
spruce up their bottom lines has
been the divestiture of many fully
depreciated assets. Since the beginning of the decade, integrated
oil companies have been aggressively selling pipelines, storage
terminals and other processing
facilities to master limited partnerships. The MLPs then take over
the assets and make investments to
keep the facilities current. Assets
like pipelines and storage facilities have been ideal investments
by MLPs because they generate
predictable revenue that can in
turn be distributed to investors.
In recent years, E&P firms have
done the same thing. New MLPs
are being formed that specialize
in the acquisition of mature fields.
They have technology that they
can apply to extend the life of the
fields. And to make their acquisitions work, they engage in hedging programs that smooth out the
swings in commodity prices.
Merger activity has been fairly
strong in the sector over recent
years, given the strong cash position some firms maintain. It’s likely
that merger activity will pick up
even more, however, as the ability to develop new reserves becomes more difficult. Leeb notes
that many firms may decide that,
“It’s cheaper to buy reserves rather
than to develop them.” R
Oil & Gas Investing
IPAA Publicly Traded Exploration
& Production Companies
2008 Research Guide to
Abraxas Petroleum Corporation
Admiral Bay Resources
American Oil & Gas Inc.
Anadarko Petroleum Corp
Approach Resources Inc.
Arena Resources, Inc.
Arsenal Energy Inc.
ATP Oil & Gas Corporation
Austral Pacific Energy Ltd.
Basic Earth Science Systems Inc.
Berry Petroleum Company
Bill Barrett Corporation
BMB Munai Inc.
BPI Energy Holdings
BPZ Resources Inc.
Brigham Exploration Company
Cabot Oil & Gas Corporation
Callon Petroleum Company
Canadian Natural Resources
Canadian Superior Energy
Cano Petroleum, Inc.
Carrizo Oil & Gas, Inc.
Challenger Energy Corp.
Challenger Minerals/Transocean
Cheniere Energy
Chesapeake Energy Corp.
Chevron Cimarex Energy Company
CNX Gas Corp
Comstock Resources
ConocoPhillips
Contango Oil & Gas
Crosstex Energy Services
Dejour Enterprises Ltd.
Delta Petroleum Corp.
Denbury Resources
Devon Energy Production Company, L.P.
Double Eagle Petroleum Company
Dune Energy, Inc.
El Paso Production Company
EnCana Corporation
Energen Corporation
Energy Partners Ltd.
Energy XXI Ltd.
Enerjex Resources Inc.
Enerplus Resources Fund
EOG Resources
Equitable Resources, Inc.
EV Energy Partners, LP
Evolution Petroleum Corp.
Exxel Energy Corp.
Far East Energy Corporation
Fidelity Exploration & Production/MDU Resources
Foothills Resources In.c
Forest Oil Corporation/Houston Exploration Co.
FX Energy Inc.
Galaxy Energy Corporation
Gasco Energy, Inc.
Gastar Exploration Ltd.
GeoMet, Inc.
GFI Oil & Gas Corporation
GMX Resources Inc.
Goodrich Petroleum Corp.
Harvest Energy Trust
Harvest Natural Resources
Hess Corporation
Ticker Symbol
ABP
ADBRF.PK
AEZ
APC
AREX
ARD
AEYIF.PK
ATPG
AEN
BSIC.OB
BRY
BBG
KAZ
BPG
BPZ
BEXP
COG
CPE
CNQ
SNG
CFW
CRZO
CHQ
RIG
LNG
CHK
CVX
XEC
CXG
CRK
COP
MCF
XTEX
DEJ
DPTR
DNR
DVN
DBLE
DNE
EP
ECA
EGN
EPL
EXXI
EJXR.OB
ERF
EOG
EQT
EVEP
EVEP
EXXEF.PK
FEEC.OB
MDU
FTRS.OB
FST
FXEN
GAX
GSX
GST
GMET
GFOGF.PK
GMXR
GDP
HVEGF.PK
HNR
HES
Stock Market
NYSE
OTC
AMEX
NYSE
NASDAQ
NYSE
OTC
NASDAQ
AMEX
OTC
NYSE
NYSE
AMEX
AMEX
AMEX
NASDAQ
NYSE
NYSE
NYSE
AMEX
AMEX
NASDAQ
AMEX
NYSE
AMEX
NYSE
NYSE
NYSE
NYSE
NYSE
NYSE
AMEX
NASDAQ
AMEX
NASDAQ
NYSE
NYSE
NASDAQ
AMEX
NYSE
NYSE
NYSE
NYSE
NASDAQ
OTC
NYSE
NYSE
NYSE
NASDAQ
AMEX
OTC
OTC
NYSE
OTC
NYSE
NASDAQ
AMEX
AMEX
AMEX
NASDAQ
OTC
NASDAQ
NYSE
OTC
NYSE
RESEARCH: Guide to
NYSE
Market Cap
Average Daily
Trading Volume
$171.24 mn
240,900
n/a
n/a
$211.42 mn
226,800
$26.03 bn
7,635,200
$232.82 mn
106,200
$1.10 bn
490,300
n/a
40,600
$1.20 bn
569,000
$27.81 mn
22,700
$16.52 mn
23,000
$1.61 bn
390,600
$1.74 bn
501,300
$230.15 mn
n/a
$18.41 mn
170,100
$741.51 mn
n/a
$273.53 mn
450,100
$3.69 bn
927,300
$307.61 mn
162,000
$33.49 bn
2,337,200
$461.45 mn
319,600
$230.40 mn
195,000
$1.29 bn
337,500
$136.16 mn
86,100
$37.22 bn
8,899,300
$1.34 bn
337,400
$17.29 bn
7,224,200
$171.55 bn
10,481,500
$3.28 bn
809,000
$4.34 bn
287,400
$1.43 bn
460,100
$113.86 bn
12,057,900
$934.37 mn
203,400
$1.36 bn
77,400
$88.66 mn
116,000
$1.24 bn
1,917,800
$5.87 bn
2,498,200
$35.28 bn
3,722,050
$122.58 mn
26,700
$144.65 mn
41,800
$11.33 bn
6,988,500
$45.70 bn
2,663,100
$4.32 bn
743,000
$340.96 mn
378,100
$377.71 mn
23,200
$21.76 mn
18,400
$4.88 bn
576,400
$20.53 bn
2,665,700
$6.04 bn
929,500
$414.56 mn
28,300
$110.05 mn
n/a
n/a
n/a
$105.16 mn
321,600
$4.76 bn
812,500
$38.09 mn
122,200
$3.86 bn
910,900
$181.74 mn
213,400
$6.69 mn
n/a
$197.50 mn
611,000
$229.02 mn
476,400
$166.72 mn
104,700
n/a
1,800
$378.11 mn
179,700
$519.28 mn
589,200
n/a
n/a
$370.82
281,400
O
i l &mnG a s I n v e s t i n g
$27.35 bn
4,600,000
17
RESEARCH: Guide to Oil & Gas Investing
17
2008 Research Guide to
Ticker Symbol
Kodiak Oil and Gas (USA) Inc.
KOG
Legacy Reserves LP
LGCY
Linn Energy LLC
LINE
Marathon Oil Company
MRO
Max Petroleum
MXP.L
McMoRan Exploration Co.
MMR
Medco Energi US LLC
PTGIF.PK
MegaWest Energy Corp.
MGWSE.OB Meridian Resource Corporation
TMR
Mitcham Industries Inc.
MIND
Murphy Oil Corp.
MUR
National Energy Group Inc.
NEGI.OB
National Fuel Gas Co./Seneca Resources
NFG
Newfield Exploration Company
NFX
New Frontier Energy
NFEI.OB
Nexen Petroleum USA
NXY
NGAS Resources, Inc.
NGAS
Noble Energy, Inc.
NBL
Norsk Hydro (ADR)/Hydro Gulf of Mexico
NHYDY.PK
Northern Oil & Gas
NOGS.OB
Occidental
OXY
Panhandle Oil and Gas Inc.
PHX
Parallel Petroleum Corporation
PLLL
Patch International Inc.
PTCH.OB
Penn Virginia Corp.
PVA
Petrohawk Energy Corporation
HK
Petro Resources Corporation
PRC
Petrol Oil & Gas
POIG.OB
Petroleum Development Corp.
PETD
PetroQuest Energy, Inc.
PQ
PTSG.OB
Petrosearch Energy Corporation
Petsec Energy Inc.
PSJEY.PK
Pioneer Natural Resources Co.
PXD
PXP
Plains Exploration & Production Co./Pogo Producing Co.
Platinum Energy Resources
PGRI.OB
Provident Energy Trust
PVX
Pryme Oil & Gas Ltd.
POGLY.PK
STR
Questar Corporation
QRCP
Quest Resource Corp.
Quicksilver Resources
KWK
RAM Energy Resources Inc.
RAME
RNCH.OB
Rancher Energy Corp.
RRC
Range Resources Corporation
Remington Oil and Gas/Helix Energy Solutions
HLX
Rosetta Resources, Inc.
ROSE
SSN
Samsom Oil & Gas Ltd.
Southwestern Energy Company
SWN
St. Mary Land & Exploration Co.
SM
Sterling Energy/Whittier Energy Corp.
SEY.L
Stone Energy Corporation
SGY
SCU
Storm Cat Energy
Swift Energy Company
SFY
Talisman Energy
TLM
TGC Tengasco Inc.
Teton Energy Corporation
TEC
Toreador Resources
TRGL
Total S.A.
TOT
TransGlobe Energy Corporation
TGA
Transmeridian Exploration
TMY
Triangle Petroleum Corp.
TPLM.OB
TrueStar Petroleum Corporation
TPCRF.PK
TXCO Resources Inc.
TXCO
Ultra Petroleum Corporation
UPL
Unbridled Energy Corporation
UNE.V
UNT
Unit Corporation
United Fuel & Energy Corporation
UFEN.OB
Veneco Inc.
VQ
Warren Resources, Inc.
WRES
Whiting Petroleum
WLL
XTO Energy Inc.
XTO
18
18
RESEARCH: Guide to Oil & Gas Investing
Oil & Gas Investing
Stock Market
Market Cap
AMEX
NASDAQ
NASDAQ
NYSE
London
NYSE
OTC
OTC
NYSE
NYSE
NYSE
OTC
NYSE
NYSE
OTC
NYSE
NASDAQ
NYSE
OTC
OTC
NYSE
AMEX
NASDAQ
OTC
NYSE
NYSE
AMEX
OTC
AMEX
NYSE
OTC
OTC
NYSE
NYSE
OTC
NYSE
OTC
NYSE
NASDAQ
NYSE
NASDAQ
OTC
NYSE
NYSE
NASDAQ
AMEX
NYSE
NYSE
London
NYSE
AMEX
NYSE
NYSE
AMEX
AMEX
NASDAQ
NYSE
AMEX
AMEX
OTC
OTC
NASDAQ
AMEX
Canada
NYSE
OTC
NYSE
NASDAQ
NYSE
NYSE
$175.00 mn
$576.93 mn
$2.50 bn
$32.34 bn
$377.25 mn
$688.62 mn
n/a
n/a
$142.98 mn
$157.87 mn
$12.66 bn
$44.13 mnq
$3.44 bn
$5.92 bn
$10.95 mn
n/a
$110.22 mn
$11.45 bn
n/a
n/a
$51.37 bn
$225.53 mn
$534.53 mn
n/a
$1.49 bn
$2.59 bn
$56.08 mn
$1.05 mn
$798.45 mn
$554.75 mn
$27.82 mn
n/a
$4.47 bn
$3.11 bn
$143.86 mn
$2.19 bn
n/a
$8.32 bn
$150.64 bn
$4.10 bn
$191.68 mn
$31.90 mn
$6.90 bn
$3.40 bn
$867.69 mn
$1.04 bn
$8.68 bn
$2.10 bn
n/a
$1.16 bn
$58.38 mn
$1.19 bn
$15.72 bn
$31.64 mn
$77.86 mn
$180.80 mn
$159.07 bn
$268.32 mn
$151.70 mn
n/a
n/a
$409.60 mn
$9.73 bn
n/a
$2.11 bn
$214,500 $757.28 mn
$726.68 mn
$1.99 bn
$23.56 bn
Average Daily
Trading Volume
718,300
54,700
714,100
5,964,700
5,190,000
1,123,870
n/a
n/a
616,900
134,300
1,524,100
12, 600
600,900
1,301,600
20,500
1,756,500
213,500
1,563,500
510,000
63,400
7,019,600
10,000
414,600
n/a
513,200
1,756,700
85,200
64,600
156,500
559,300
158,900
n/a
1,333,830
1,547,200
188,300
1,330,600
400
1,010,800
340,200
1,036,000
67,000
340,200
2,126,100
1,148,500
312,800
5,800
2,364,800
661,200
3,181,300
437,300
229,500
395,300
3,678,200
193,500
60,000
163,200
2,600,000
213,600
851,400
357,400
n/a
560,400
1,075,000
n
537,600
8,000
203,900
460,000
559,500
4,602,600
n/a = not available Average daily trading volume based on three-months’ data Sources: IPAA, Yahoo! Finance as of Jan. 23, 2008
RESEARCH: Guide to Oil & Gas Investing
Teton Energy Corporation: Building
for today, exploring for tomorrow.
Company Profile
Teton Energy Corporation focuses on the acquisition, exploration and
development of oil and natural gas in North America. The company
currently holds approximately 1,084,000 gross acres which are
concentrated in the prolific Rocky Mountain region of the U.S.
Teton has leasehold interests in the Denver-Julesburg
Basin, the Piceance Basin in Western Colorado, the
Williston Basin in North Dakota, and the Big Horn Basin
in Wyoming. Teton is headquartered in Denver,
Colorado and is publicly traded on the American
Stock Exchange under the ticker symbol TEC.
CONTACT
Lonnie R. Brock, CFO n Teton Energy Corporation
410 17th Street, Suite 1850 n Denver, Colorado 80202
(303) 565-4600 n fax (303) 565-4606
[email protected]
To order copies of this Fact Sheet, call (800) 458-2700. This Investor Fact Sheet is a paid advertisement prepared by the subject company. It has not been reviewed for accuracy
by Research magazine, which does not endorse or recommend securities. Research receives a fee for distributing this Investor Fact Sheet.
1 4 t h A n n u a l O G I S N e w Yo r k
April 7-9, 2008
S h e r a t o n N e w Yo r k H o t e l & To w e r s
N e w Yo r k , N e w Yo r k
IPAA invites you to attend the Oil & Gas Investment Symposium
(OGIS) in New York – the premier forum where over 100 public
oil and gas companies will market their company to “the street”.
Network with colleagues and hear the latest trends in the
industr y. This is a must attend event for anyone following the
oil and gas sector.
QUESTIONS? For company presentation and sponsorship information,
contact Bill Moyer at [email protected] or (202) 857-4767
For attendee registration information, contact Elissa Morello at
[email protected] or (800) 433-2851
Register online at www.ipaa.org