Profit When Oil's Have-Nots Crash

Guess which group of oil and gas stocks I think smart investors should be buying now?

Desperation was on full display last week when Repsol YPF(REP - Cramer's Take - Stockpickr), the Spanish energy company, bought BP's(BP - Cramer's Take - Stockpickr) stake in the Shenzi field in the Gulf of Mexico for $2.15 billion. According to oil industry analysts at Wood Mackenzie, this price values the oil and gas that BP estimated it could recover from the field at a stunning $97 a barrel of oil equivalent. Repsol has said that it believes it can add enough extra reserves once it finishes drilling to cut the price to about $68 a barrel.

Spending $97 a barrel to acquire oil that's still in the sea floor underneath 4,300 feet of water in the hurricane-prone Gulf of Mexico? (By the way, it will cost about $4.4 billion to develop the field over the next nine years.) That's either extraordinarily bullish or just plain desperate.

After looking at Repsol's reserve numbers, I'd vote for desperate. In January 2006, Repsol revised its proved reserves downward by 25%, thanks to legal, political and technical changes in Bolivia (the source of 52% of the downward revision), Argentina and Brazil. That brings Repsol's three-year organic reserve replacement rate to a negative 95%, according to Standard & Poor's.

Exxon Mobil: Right or Missing the Boat?

Contrast that to what passes for big moves at Exxon Mobil(XOM - Cramer's Take - Stockpickr). In the first quarter of 2006, Exxon Mobil paid out $2 billion in dividends and spent another $5 billion on buying back its shares. For the second quarter, it upped its share repurchases to $6 billion.

With cash flow from operations of $14.6 billion in the first quarter of 2006, Exxon Mobil has been raked over the coals by some on Wall Street for not doing more with its cash. Even after those buybacks and dividends, the company closed its first quarter of 2006 with $32 billion in cash and cash equivalents on hand.