How to Play $200 Oil

Anadarko's breadth of exposure throughout the Gulf of Mexico allows the company to tie its infrastructure together for $1 billion of savings on pipeline and development costs.

Further on the natural gas side, Anadarko is developing a recently acquired property in the South China Sea. China is obviously a large user of all types of energy, so this will provide more local supply for the whole Southeast Asian area.

In the last three years, Anadarko has logged a 50% deep-water-drilling success rate. This is the highest in the industry. If oil goes to $200, then deep water consistency will allow Anadarko to charge higher fees for drilling and finds. Also, Africa exposure in Ghana is larger than Anadarko originally thought. With most oil and gas finds, every time you drill you come up with less oil. Anadarko's Ghana find is unique because every time it drills in that area, it finds that the area is larger than expected.

Anadarko is also dirty cheap, trading with a forward P/E of 12. With oil going to $200, the earnings estimates are way too low.

Another name we like for $200 oil is Ram Energy(RAME Quote). Ram, which has various oil and natural gas lines in the Barnett share coming online, should benefit as prices continue to skyrocket.

Drilling is up 100% year over year, showing that management is finally starting to take advantage of the higher oil and natural gas prices, and Ram is very cheap vs. its peers based on a price/net asset value ratio, trading at 0.53 vs. the mean average of 1.6. Management owns a large portion of the company as well.