LAS VEGAS -- With most of his energy plan leaked like oil from a beached tanker, President Bush is set to describe the details and rally supporters as he formally presents his proposals in St. Paul, Minn., Thursday.
While the Democrats released their "plan" Tuesday -- largely pushing conservation and price caps -- the Bush plan stands a good chance of getting a fair hearing on Capitol Hill because many Democrats are open to anything -- including increased production -- that will mean lower power and gasoline prices for their constituents. In fact, some Democrats are stealthily supporting the Bush plan, fearing that advocating conservation above all else will lead to another Carter-like party meltdown.
Conservationists and environmentalists will unquestionably attempt to vilify Bush as an ally of
big, bad oil. After all, Bush and his family -- not to mention key members of his cabinet -- came to Washington with experience from the oil patch. And, while the administration has a tough selling job ahead, the prospects for adoption of significant portions of the White House energy agenda are good.
Wednesday
we took a look at companies that stand to benefit from Bush's plan to invest heavily in the electric-power business. Today, we look at companies that may benefit from plans to increase exploration and production of both oil and natural gas.
When Alaska Freezes Over: A Rockies Road Instead?
The focus of Bush's plan to increase exploration and production has been the frozen Alaska tundra. The plan will call for 1.5 million acres of the
Arctic National Wildlife Refuge, or ANWR, to be opened to oil exploration. That represents less than 10% of the entire refuge, and
Vice President Cheney has been adamant that strict environmental standards will be developed to preserve the ecosystem and environment.
While ANWR may not be a
panacea for American energy independence, understanding that Arctic drilling is symbolic of Bush's approach to solving the current crisis is key to finding companies that will profit from his plan.
Bush may have a battle on his hands for ANWR, and quite possibly he may be willing to back off for certain concessions. Knowing that ANWR won't effectively add to production for at least five years, Bush might trade exploitation in Alaska for relaxed restrictions on drilling in the Rockies and off the continental coasts. The Rockies, especially, would provide more rapid exploitation prospects without the development of costly new infrastructure.
With two recent mergers focusing on Rocky Mountain natural gas plays, major energy players believe the Rockies may well benefit from the Bush plan. Such a policy would stand to benefit companies like
Barrett Resources (BRR Quote - Cramer on BRR - Stock Picks),
soon to be acquired by
Williams (WMB Quote - Cramer on WMB - Stock Picks), and
HS Resources (HSE Quote - Cramer on HSE - Stock Picks) which
is being acquiredby
Kerr-McGee (KMG Quote - Cramer on KMG - Stock Picks). In addition, companies like
Western Gas Resources (WGR Quote - Cramer on WGR - Stock Picks),
Devon Energy (DVN Quote - Cramer on DVN - Stock Picks),
Patina Oil & Gas (POG Quote - Cramer on POG - Stock Picks) and
Tom Brown (TMBR Quote - Cramer on TMBR - Stock Picks) are players in the Rockies, especially the Powder River Basin, where coal bed methane is emerging as a very profitable play.
"There is no doubt that the Rockies will be a much more significant part of natural gas production in the future, especially in the Powder River Basin," notes
Raymond James natural gas analyst Wayne Andrews. "You will see a greater focus on the region as production continues to increase."
Large gas players like
Anadarko (APC Quote - Cramer on APC - Stock Picks),
Apache (APA Quote - Cramer on APA - Stock Picks),
Burlington Resources (BR Quote - Cramer on BR - Stock Picks) and
EOG Resources (EOG Quote - Cramer on EOG - Stock Picks) will also benefit and may well serve as consolidators in the region.
If development of the Arctic becomes a reality -- something I don't think would even begin to produce oil and gas in the next two years -- the beneficiaries are likely the major, integrated oil companies. The majors have the capital resources to make the exploitation of such wilderness profitable:
ExxonMobil (XOM Quote - Cramer on XOM - Stock Picks),
Chevron (CHV Quote - Cramer on CHV - Stock Picks) and
BPAmoco (BP Quote - Cramer on BP - Stock Picks) are names that come to mind.
Also, both
Phillips Petroleum (P Quote - Cramer on P - Stock Picks) and Anadarko would stand to benefit from additional Alaskan exploitation as both have existing projects in the 49th state.
At Your Service
Jim Cramer is right -- the service companies are key beneficiaries of the Bush plan. Obviously, more drilling means more drilling rigs and other energy service infrastructure so companies like
Schlumberger (SLB Quote - Cramer on SLB - Stock Picks) and
Halliburton (HAL Quote - Cramer on HAL - Stock Picks) will profit. Other, midrange service companies will benefit as well.
However, with the rig count pushing capacity, the need for new rigs and component parts to service existing rigs suggests the real opportunity may be with the companies that provide the pieces of drilling rigs and other exploration and production equipment. Companies like
National Oilwell (NOI Quote - Cramer on NOI - Stock Picks) lead this list along with
Grant Prideco (GRP Quote - Cramer on GRP - Stock Picks),
Lone Star (LSS Quote - Cramer on LSS - Stock Picks),
Maverick (MVK Quote - Cramer on MVK - Stock Picks) and
Varco (VRC Quote - Cramer on VRC - Stock Picks). While many of these companies have seen nice gains as bullishness energized the sector, earnings growth could be significant and visibility is excellent. "With everybody running everything they have, the parts and components providers are in a good position," says Dan Pickering, director of research at
Simmons, a Houston energy investment and research firm and a member of the
TSC Energy Roundtable. "Anytime production ramps up, these suppliers see a boost to business and gain pricing power."
Energizing?
While the formality of Bush's presentation has been widely anticipated, the slow unveiling of the administration's energy program may make the presentation somewhat anticlimactic. After all, Vice President Cheney can't have left too many secrets to unveil after his "Energizer Bunny-like" media tour.
That leaves many pundits -- while acknowledging the long-term benefits for the industry -- wondering if Bush's plan will be met with yawns and some short-term weakness in the stocks. "I don't think we'll see a lot of strength in energy stocks from Bush's speech," notes Raymond James' Andrews.
Pickering thinks all the hype leading to the main event may have stolen the show. "Many of our clients have asked how to play the energy policy announcement," he says. "So many people are asking, that when we get the official announcement on Thursday, it is very possible that we could see a 'sell the news' reaction."
Bush simply wants to sell his agenda. If he does, the markets will take care of themselves.
What do you think of the Bush energy policy? Shoot me an
email with your comments -- including your full name and home state -- and I'll report back with your responses. Coming next: A look at the details of the Bush plan and your thoughts on the proposals.
Christopher Edmonds
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