Here is a reprint of a post I made on the EOG board re: SSB raising price targest for BR and EOG!!!!
"Financial discipline" is in vogue among E&P companies. In essence - they are saying - if you expect us to go nuts overspending this cycle - driving the price of gas way back down - think again.
Having been burned in the last cycle by this over spending - most companies are pressing forward with their exploration budgets but not wildly increasing them. The result IMHO will be higher, more sustainable commodity prices for a longer period of time.
This is better news for the E&P companies and somewhat less bullish news for the drillers, equipment makers and field services companies. Hence, I believe it was Morgan Stanley that downgraded SLB and SII - but this is what he said. He said this is a routine valuation call - AND HE STILL RECOMMENDS OVERWEIGHTING OF THE ENERGY SECTOR.
So - SLB and SII perhaps need to rest and let the E&P group catch up with them. The E&P group (I own EOG and BR as the two purest natural gas E&P big cap stocks I can find) began this current rally from a very depressed level - and IMHO are still UNDERVALUED relative to the surging price for natural gas.
I believe you are correct - NG E&P companies have tons more upside.
On Friday - Salomon Smith Barney agreed with your observation. On Friday, because of the increase in Natural Gas price - SSB raised its target for EOG from $34 to $42 (yeah!!!) and raised its target for Burlington Resources - BR - from $48 to $56 (go baybee go!!!)
As Stewart on the Ameritrade commercial says - "That is 8 Bucks, my man!" Salomon Smith Barney says the recent increase in natural gas warrants an additional $8 in value to each of these leaders (EOG and BR) in the natural gas E&P sector.
``There was a concern that oil could fall to $18 or $20 a barrel after the OPEC agreement,'' said Bill Featherston, an analyst with PaineWebber. ``Anything north of that is now considered gravy.''
While stronger commodity prices have done little for the industry's powerhouses -- shares of Exxon Mobil Corp. (NYSE:XOM - news), Chevron Corp. (NYSE:CHV - news), and Texaco Inc. (NYSE:TX - news) have barely budged in the last year -- they have made smaller exploration and production firms look something like the once high-flying technology companies.
Shares of Oklahoma City-based Devon, for instance, are up 80 percent since the start of the year. Apache has risen 67 percent and shares of Enron Oil and Gas (EOG) (NYSE:EOG - news) have more than doubled. Both Apache and EOG are based in Houston.
``These companies are going to generate huge earnings, and now they're even starting to attract momentum players,'' said Wheeler. ``It will qualify as an awesome growth story.''
Bigger Isn'T Better
Unlike the so-called major integrated oil companies, most exploration and production firms focus solely on finding and producing hydrocarbons. They do not refine oil and sell gasoline, nor do they make petrochemicals.
``These companies tend to be relatively pure commodity plays,'' said Pace.
``The integrated are just that -- integrated. They are influenced by refining and marketing as well as chemicals,'' he said, adding that for the most part smaller companies are also better growth plays than the oil majors.
Pace, in fact, believes exploration and production stocks could rise another 20 to 30 percent before hitting historic valuation peaks.
North of the boarder, Canada's independent oil and gas producers are also enjoying the good times.
The Toronto Stock Exchange's oil and gas index stands at 7,842 points, up about 36 percent from start of year, and fast is approaching the all-time high it set in October 1997.
Like their counterparts in the United States, Alberta Energy (Toronto:AEC.TO - news), Anderson Exploration (Toronto:AXL.TO - news), Canadian Natural Resources (Toronto:CNQ.TO - news), and Talisman Energy TLM.TO) are all at -- or near -- record highs.
``I guess we're finally getting our 15 minutes in the sun,'' said Deutsche Banc Alex.Brown's Wheeler.
Source - Yahoo news - see EOG or any other specifically named stock on the board.