Date updated:02-12-2007
In the Feb 12 issue of the weekly, Barron's interviewed Art Smith of John S. Herold, a highly respected energy research and consultant company. In the interview Smith outlined the "exploration paradox," of how even though demand for oil continues to grow, many major companies no longer believe in the risk/reward setup of exploring for new oil finds. Many will go the acquisition route instead. To quote him directly:
"Our bottom line on this exploration paradox is that it will cause the large companies to review all the major players in the world, and those that have undeveloped reserves of significant magnitude but require capital will be the targets. Major oil companies have become bankers, rather than risk-takers."
Smith is also bullish on Natural Gas. This portfolio consists of his stock related ideas during the interview, and some direct quotes.

-
APC
Anadarko Petroleu - $63.54
- +1.94%
- $63.03
"The most undervalued on the basis of a reasonable price tag are the North American exploration and production companies. There are probably 50 companies, but among the ones that are most undervalued are Anadarko Petroleum [APC] and Chesapeake Energy [CHK] and Apache [APA]."

-
CHK
Chesapeake Energy - $24.51
- 0.00%
- $N/A
"The most undervalued on the basis of a reasonable price tag are the North American exploration and production companies. There are probably 50 companies, but among the ones that are most undervalued are Anadarko Petroleum [APC] and Chesapeake Energy [CHK] and Apache [APA]."

-
APA
Apache Cp - $98.51
- +1.36%
- $98.55
"The most undervalued on the basis of a reasonable price tag are the North American exploration and production companies. There are probably 50 companies, but among the ones that are most undervalued are Anadarko Petroleum [APC] and Chesapeake Energy [CHK] and Apache [APA]."

-
CNQ
Canadian Nat Res - $65.32
- +1.92%
- $65.19
"We like some of the Canadian companies, EnCana and Canadian Natural Resources, which have tremendous resources in countries that are safe and where you can make a profit. In the case of Canadian Natural [CNQ], for instance, they have an enormous oil-sands investment whose substantial production and profit value is just becoming visible."

-
RDS-A
Ryl Dtch Shl Cl A - $55.24
- +2.58%
- $54.55
"Royal Dutch Shell [RDSA], because of their impending purchase of Shell Canada, will be able to add in Shell Canada's oil-sands reserves, which have been significantly upgraded. I'm still crazy about the oil sands. I keep telling anybody who doesn't know about the oil sands to buy some and put it in your kids' or your grandkids' account and just forget about it, because it is clearly a unique asset that is economic at much lower oil prices. If prices go to $100 a barrel, it will be phenomenally profitable, because it goes on forever." Smith also states the company is a better value then Exxon Mobile as far as big oil is concerned.

-
SU
Suncor Energy Inc - $29.85
- +2.51%
- $29.78
Smith believes the company is a takeover target, perhaps by BP, as it has little exposure to Canadian oil sands.

-
NXY
Nexen Inc - $21.79
- -0.50%
- $22.28
Smith believes this company is also a takeover target by a major oil company.

-
LINE
Linn Energy - $25.54
- 0.00%
- $N/A
"There is a re-emergence of the master limited partnership for upstream companies"
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