Late this summer, more than 1,000 buysiders went to the Mile High City in search of growth stories among 95 energy companies presenting at The 11th Oil & Gas Conference hosted by Denver-based investor-relations and advisory firm EnerCom Inc.

"Five or six years ago, a lot of people were saying that oil and gas was a sunset industry, but from a sunrise-to-sunset perspective, I believe we're now maybe at 10 o'clock in the morning-and alternative energy sources aren't on the immediate horizon," says Greg Barnett, EnerCom's founder and president.

"Most investors, I believe, understand that the 'E' in E&P stands for earnings, not expectations. They also understand that this is an industry that could still generate good returns for investors, even at $55 oil."

What buysiders heard from the two-thirds E&P presenters were the themes of cost containment and improving margins-stressed by such operators as Forest Oil Corp., Ultra Petroleum, St. Mary Land & Exploration and Chesapeake Energy. On the service side, they heard drillers like Nabors Industries and Helmerich & Payne discuss the value they're bringing to the table, in terms of helping operators get more oil and gas out of the ground.

"These weren't overly exuberant industry leaders that are building their companies on $100 oil or $10 gas," says Barnett. "These are people still running their economics on $45 to $50 oil and $5 to $5.50 gas."

While the bigger names of the patch drew overflow attention, buysiders were also particularly interested in those below-the-radar, smaller-cap E&P and service stories with growth written all over them. Among the former group, Kodiak Oil & Gas and Petsec Energy drew approving nods, says Barnett; among the latter, Core Laboratories watched its stock shoot up $3 per share on the heels of its presentation.

Conference attendee David Anderson, partner and energy analyst for Palo Alto Investors in Palo Alto, California, observes that, with all the growth in E&P spending, "the oil-service companies are going to do especially well." A couple to watch are Allis-Chalmers Energy, a diversified provider of services including horizontal and drilling equipment; and Superior Energy Services, a provider of production services in the Gulf of Mexico.

Meanwhile, Anderson notes that because there's so much investor focus on shale-play operators like XTO Energy, EnCana and Carrizo Oil & Gas-all with good positions in the Barnett Shale-smaller-cap E&P companies involved in more conventional, but still economically attractive, plays are going largely unrecognized for their growth prospects.

Among such non-shale producers that presented, he cites Gastar Exploration, PetroQuest Energy and Goodrich Petroleum, all of which have highly repeatable opportunities in the Bossier and Cotton Valley gas plays seen in East Texas.

Says the buysider, "The Bossier gas plays can, in some cases, be 10 times bigger than some shale plays."

Among undervalued operators, he says, is Gulf of Mexico producer ATP Oil & Gas, trading at around two times 2007 cash flow versus a peer-group average multiple range of between six and eight.

"The Gulf is seen as high-risk, but my view is that, if your finding and operating costs there are low and you're getting premium pricing for your production, then the net present value of an Mcf (thousand cubic feet) of gas found there is significantly higher than an Mcf of gas found in certain onshore shale plays."

Yet another out-of-favor E&P presenter he cites: Endeavour International, a North Sea operator whose acquisition of Talisman Energy's assets in that region "will completely transform the small-cap company."

Anderson favors smaller-cap E&P players "because we think they can outgrow the larger players on a relative basis, and because they best fit our long-term, value-investment strategy."



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