E&P Capital

About 500 execs recently gathered at Oil and Gas Investor’s annual Energy Capital Conference and Exhibition in Houston. The two-day show featured a day of informative workshops and a solid lineup of industry veterans sharing their views on the energy-lending landscape and current events.

The well-known keynotes on day two of the conference were author Robert Bryce and former NYC Mayor Rudy Giuliani. CNBC even had a news crew onsite for the show, which allowed interviews at our Energy Capital event to be part of CNBC’s ongoing commentary on energy that day. In case you missed them, here are some links to videos from the show:

–Check out “Oil Execs Take Heat On Capitol Hill“—it shows a brief clip of Jim Hackett, Anadarko Petroleum CEO, giving his acceptance speech following his award as Executive of the Year. The video portion covering CNBC general assignment reporter Bertha Coombs’ comments is also part of the clip.

–Here, Bertha Coombs interviews Rudy Giuliani during the show’s afternoon break on the show floor.

– This is the formal interview with Mayor Giuliani and Bertha Coombs at the show.

–Here, Bertha Coombs is being interviewed during CNBC’s Midday Headlines. (Her portion of this video begins at 2:30 minutes and runs till 4:00 minutes.)

–Finally, in this round-up discussion Bertha Coombs chats with two of our featured conference speakers: Neal Dingmann of Wunderlich Securities and Tim Duncan with Phoenix Exploration. The interviews took place after President Obama’s Oval Office Address on the BP Oil Spill aired.

It’s a lot to miss, I know. But don’t fret. Our conference team is already making plans for next year’s show, where we plan to take the quality of content, speakers and networking opportunities to a whole new level. Shouldn’t you be there?

–Bertie Taylor, Director of E-content, Oil and Gas Investor, btaylor@hartenergy.com, 713-260-6497.

The global financial chaos and low commodity prices that plagued late 2008 and most of 2009 left much of the investment community in limbo, eager for signs of recovery. In the interim, several prominent institutional investors quietly reduced their exposure to energy stocks. But other buysiders are taking a more strategic, optimistic view, seeing valuable investment opportunities in the major integrated oils, independents with seasoned management teams and “underdog stocks” Wall Street may be underestimating.

And, while the buysiders investing in energy aren’t immune to what’s creating industry buzz—unconventional assets and oil-weighted E&Ps—many are reluctant to exchange foundational beliefs for what’s in fashion. Now that institutional investors are looking again, are they valuing companies based on assets, balance sheets or just commodity prices?

In June, look for my U.S. buyside cover story in Oil and Gas Investor and on OilandGasInvestor.com . Six buyside firms discuss current investment strategies, holdings that are exceeding expectations and energy subsectors poised to outperform this year. More than 15 companies in various energy subsectors are identified as exceptional investment opportunities.

As a complement to the story, commentary from interviewees that had to be cut due to space limitations will be posted in coming weeks. Stay tuned.

–Bertie Taylor, Senior Editor, Oil and Gas Investor, btaylor@hartenergy.com, 713-260-6497.

In 2008, the state of the global economy forced oil and gas executives to take a hard look at business models, balance sheets and asset portfolios. But in spite of its high drilling costs, a play that remains a key piece of business for many operators is the prolific Haynesville shale.

While the shales typically have gas-in-place, they are expensive to drill. This, coupled with steep well-decline rates, launched vigorous debates about the shale plays’ economics last year. Some analysts suggest the shales have to carry a hefty reserve requirement to truly be economic. Also, these plays require a lot of drilling to give operators running room to shorten their learning curve, a daunting challenge with Henry Hub gas prices still trending around $4 per MMBtu.

While newer shale plays sparked intense interest among the “shale-haves” in 2009, the Haynesville remains in the Top 5, post recession, thanks in part to impressive geological characteristics and stellar well results on the Louisiana side of the play. Convinced the East Texas portion also holds a wealth of potential, operators have been busy locking in acreage and refining their development approach—and they’re already seeing encouraging results.

In May, look for my East Texas Haynesville cover story in Oil and Gas Investor and on OilandGasInvestor.com to hear from operators, analysts and the midstream sector about how this side of the play has incredible potential—even in times of lower commodity prices!

As a complement to the story, an exclusive audio interview with Hill Vaden, Gulf Coast upstream analyst for research and advisory firm Wood Mackenzie, is now posted at OilandGasInvestor.com. Vaden discusses Haynesville economics and the state of natural gas demand.

–Bertie Taylor, Senior Editor, Oil and Gas Investor, btaylor@hartenergy.com, 713-260-6497.

Without higher commodity prices as a general-interest magnet, how should wary investors spot winning E&P stocks in this year? Four analysts weighed in with Oil and Gas Investor about nine upstream small- and mid-cap stocks that will definitely be worth watching. In April, look for my “Stocks to Watch” feature story in Oil and Gas Investor and on OilandGasInvestor.com to find out which E&P company is:

–on a path of more than doubling its size on a production and reserves basis over the next three to four years.

–a likely takeout candidate for $20-billion-plus companies looking to enter the U.S. shales.

–achieving some of the best rates of return in the business for its core development as oil prices continue to stabilize.

–setting its sights on the Cana shale, after years of skepticism about unconventional assets.

–off to a great start opening a massive trend in the Gulf of Mexico.

–using its experience in working high-decline assets in the Rockies to turn solid profits in the Marcellus shale.

–based in U.S. but blazing an impressive exploration trail overseas under the guidance of an E&P veteran.

–making the most of $70 oil in the Permian Basin.

–combining low operating costs and 20% production growth rates that can be repeated for the next three years.

As a complement to the story, an exclusive audio interview with Fadel Gheit, managing director of oil and gas research, Oppenheimer & Co., is now posted at OilandGasInvestor.com. Gheit discusses investor sentiment toward energy, favor for oil-weighted E&Ps and top stocks’ characteristics.

–Bertie Taylor, Senior Editor, Oil and Gas Investor, btaylor@hartenergy.com, 713-260-6497.

In the wake of the market crash in 2008, many public-equity investors are still favoring easily monetized, traditional securities over private investments in public entities (PIPEs) and overriding royalty interests. Why? Liquidity, liquidity, liquidity.

“Institutional investors want to know that their equity isn’t locked up—this is the primary catalyst that shut down the PIPEs when the financial market crashed,” explains Adam Connors, director with California-based C. K. Cooper & Co.

Consistent PIPEs in the E&P space started to dry up in late ‘08/early ’09, then all equity financings essentially disappeared. In late 2009 public offerings and registered direct deals reemerged and flourished, largely because these issues were readily trading; companies that weren’t shelf eligible just weren’t generating interest due to the illiquidity risk, Connors says.

“The shift is a product of two things. One, there’s a lot of volatility in the markets. We see it in how bipolar commodity prices are and in the macro-economic trends that have emerged during the past few months.”

People are still skittish about the economy overall. When news is released these days, especially of a geopolitical nature, there is a much greater variance in commodity price swings. As a result, the safer bet for institutions to appease their needs/investors is to stick with more liquid options.

“They really like companies that have adequate volume. This would let them rapidly get out of their position—if they had to—with a velocity that would meet their fund’s appetite for risk. The retail folks are more flexible, but as companies mature they tend to want the institutions to make up a larger portion of the shareholder base.”

Are PIPEs a thing of the past in E&P finance? Not necessarily. Endeavour International Corp. just announced one of the first E&P PIPEs to cross the finish line in months: a $21.1-million PIPE via investments from Smedvig Capital, Pelmer Securities, Sanders Morris Harris and others, which included some of the E&P’s officers and directors, individual investors, trusts, pension funds, and foundations.

“This one is a little different because it’s participants are already well invested in the issue. They’re fine with having their shares being locked up—typically six months or so, per the SEC—because they are essentially locked up anyway.”

Connors concluded, “If there’s more stabilization in the economy and funds’ appetite for certain investments, PIPEs can get some of their appeal back. However, when this happens, investors will be commanding higher discounts for the offerings to manage that liquidity risk.”

For more of Adam’s comments, see his recent video interview with Oil and Gas Investor’s E-Editor Nissa Darbonne at the Winter NAPE Video Interviews section of OilandGasInvestor.com.

–Bertie Taylor, Senior Editor, Oil and Gas Investor, btaylor@hartenergy.com, 713-260-6497.

As always, this year’s winter NAPE expo in Houston was a terrific opportunity to hear plenty of industry buzz, feel which way the wind was blowing in A&D and see colleagues you hardly ever get to see. Some  takeaways:

–Though expensive to develop, the shale plays still have the industry excited. However, as first movers planted their flags some time ago (and at a much lower cost per acre), it’s become difficult for smaller E&Ps to accumulate large positions in the shales. Shales also require a good mix of development expertise and plenty of cash, two more hurdles for many smaller producers. The play that keeps coming up in conversation: Marcellus.

–The money is really back in E&P. After months of being in a deep-freeze state, capital is flowing more freely for energy investments. Producers are anticipating fewer bumps and bruises from the next round of credit redeterminations. With the changes in reserves-reporting rules in effect, many companies are busy doing what’s necessary to avoid painful write-downs this spring. Some are accomplishing this by selling non-core assets or ones that are producing less than expected.

–Though potential oil and gas tax reforms and a financial system overhaul are still in play, several well-respected industry figures openly doubt the tax portion will make it across the finish line.

–Several folks at this year’s show said attendees were showing genuine interest in the prospects on display. A good number of people were huddled around tables by the refreshment areas and on the upper floors of the convention center, nodding while studying maps and well logs—always a positive sign.

–The industry is concerned about the state of gas prices, but it’s not giving up. While oil prices are more attractive at the moment, firms with heavy gas portfolios aren’t running for the hills. At the expo, the buzz about gas pricing was that the numbers would get better, but not significantly so until late 2010/early 2011.

–Bertie Taylor, Senior Editor, Oil and Gas Investor, btaylor@hartenergy.com, 713-260-6497.

2009 was a painful year for producers and capital providers alike. But honestly, here at the beginning of 2010, the picture is already so much better than it was just a year ago.

Though many of us in the industry couldn’t wait to see the end of 2009 for a long list of reasons, the tail end of last year actually held some pleasant surprises. For starters, capital began flowing again. After months of producers plodding onward with a combination of wits, slashed credit lines and existing projects, the market slowly turned a corner. Announcements began to trickle across the wire about successful equity and debt raises, a clear signal that the dismal state of the markets was actually starting to get better.

I propose that we hit a particularly interesting high point when Cobalt International Energy Inc. finished its Thanksgiving turkey and promptly approached the public markets, hoping investors would contribute more than $1 billion via an IPO; this, at a time when the company had no proven reserves and expected little revenue for the next two years. To Cobalt, the public markets replied with $850.5 million. Short of the mark, but under the circumstances, amazing.

Once money began to flow, the pace of deal activity thankfully kicked itself out of neutral. Quality assets began changing hands and just when energy editors thought they could start their countdown to Christmas, Exxon Mobil Corp. struck a $41-billion, all-stock deal to buy Houston-based XTO Energy, renewing battered faith in the future of domestic natural gas.

Industry luncheon presentations have even become interesting again—the prevalent themes of “live within your means” and “cash is king,” taking a break, for now.

True, commodity prices aren’t where they used to be. But take heart. As long as the capital keeps flowing, the projects—and profits—will come.

–Bertie Taylor, Senior Editor, Oil and Gas Investor, btaylor@hartenergy.com, 713-260-6497. Also see A-Dcenter.com and UGcenter.com.