The rally in oil stocks abruptly reversed Tuesday, but the change did little to dampen the optimism at the
Independent Petroleum Association of America's
annual investment symposium in New York.
In fact, the buzz in the hallways as company presentations got underway was that some oil companies may actually try to sell shares before the quarter ends. This would mark a significant step in the renewed investor interest in the sector, which has leapt off its recent lows, but is still far below 1997 highs.
Just last week,
issued $4 billion in debt securities after having upped the size of its offering, and both
have registered to sell up to $1 billion each in debt securities or common and preferred stock. On the service side,
earlier this month sold $1 billion in high-yield bonds. All these deals indicate that investor interest is returning.
If oil stays at its current levels -- the May futures contract traded at $18.14 Tuesday, up 34 cents -- the deals will start flowing, says Michael Bock, an associate in corporate finance with
, a Denver-based investment bank.
While some oil and gas companies are scaling back drilling this year due to last year's dreadful downturn in crude oil prices,
Louis Dreyfus Natural Gas
is gearing up for an active drilling year.
"This is a year when you don't want to be in a position to pull your horns in," says Mark Monroe, president and chief executive.
With a drilling success rate topping 90% (about double the industry average), Dreyfus can manage an active drilling program. The secret is the company's low-risk approach to drilling, Monroe says. Dreyfus, with 89% of its reserves geared to natural gas, adds reserves by drilling in areas in which its employees already are extremely familiar with the fields and geology. Fully 95% of LD's reserves are concentrated in three areas: the mid-continent region, the Gulf of Mexico coast, and the Permian Basin in Texas.
This tight focus helps LD's staff become intimately familiar with the area, decreasing the drilling risk, Monroe says. It also lowers the company's operating costs, generating a higher cash margin.
Since 1994, Dreyfus has added 604 billion cubic feet equivalent, which could include oil, to its reserves through the drill bit, 258 billion cubic feet equivalent in 1998 alone. Acquisitions are also important, he says. The company added 563 billion cubic feet equivalent to its reserves since 1994 through acquisitions, but it added only 7 billion cubic feet equivalent last year.
Monroe considers acquisitions an adjunct to the core building of the business through drilling. "You can't count on acquisitions," he says. In fact, he says, last year the acquisition market was "pretty frothy." It was difficult to get transactions done since sellers' expectations were well above buyers' expectations. And now that oil prices have rebounded, the acquisition market may continue to be difficult.
But this doesn't mean the company isn't looking. Still, candidates better have a more attractive rate of return than is available through drilling. "As we find opportunities, we may cut back on drilling or defer some projects," he says.
Sometimes the people who don't show up at industry conferences are just as telling as the people who do show. In the case of this year's IPAA conference, the smallest of producers -- those whose stripper wells produced 10 barrels a day or less -- aren't here because they're no longer in business. That shows how hard hit the domestic industry was last year, said Greg Barnett, president of
, a Denver-based consulting group.