F?rancis J. Reinhardt Jr. is an institution among petroleum analysts. After more than 50 years in the business, he is still on the go, an energetic and outgoing man who attends many investment conferences and other analysts’ events around the world. In 2007, he visited the prolific Buzzard Field in the North Sea with Nexen Inc. and went on an analysts’ trip to Vietnam with Talisman Energy Inc. Earlier this year, he went to Trinidad with Canadian Superior Energy Inc.


At press time, he was at an analysts’ reunion in the Great Smoky Mountains of North Carolina. He still covers the U.S. and Canadian independents and regularly talks with E&P company chief executives.


Reinhardt graduated from Seton Hall University in New Jersey and has an MBA from New York University. He is a past president of NAPIA (the National Association of Petroleum Investment Analysts) and the Oil Analysts Group of New York, and is a member of the New York Society of Securities Analysts.


In 1956, he joined Carl H. Pforzheimer & Co. to work in back-office operations and, about a year later, he switched to being an equities analyst. In 1966, he made partner and made his first trip to Calgary. From there, he perceived a lot of potential growth in the Canadian energy sector, which developed into one of his areas of expertise.


In 2005, after 49 years at Pforzheimer, he left with partner Al Anton to join Burnham Securities Inc., a unit of Burnham Financial Group in New York that has corporate finance, research, asset management, brokerage and four mutual funds under its title.


At Burnham, he is a managing director who, he jokes, neither manages money nor directs people. But he and Anton provide research and advice to institutional and high-net-worth clients. In light of the energy-equity meltdown and extreme market volatility, Oil and Gas Investor sought out Reinhardt for his long-term perspective.


Investor Frank, in this crazy market, what are you telling your clients?
Reinhardt Unless they absolutely have to sell something, stay with it. The companies we’re recommending are all good companies and they will survive this meltdown. I don’t know where the bottom of this market is, although I think we are close—it’s the worst one I’ve ever seen.
But I am buying some things myself. There are some really cheap stocks around, and I don’t think it has anything to do with the oil and gas companies themselves. Whether it is Wellington or T. Rowe Price or Vanguard, they have all had huge withdrawals out of their funds due to cash calls because people want out of the market. In addition, margin calls have really affected stocks severely. To margin anything in this market is the kiss of death.


Investor What kind of research reports are you writing these days?
Reinhardt There’s not so much writing. I do a lot of e-mailing and talking with people. I’d rather have discussions with investors one-on-one. And I continue to attend a lot of meetings with the companies I cover.


Investor Based on that, what intrigues you lately?
Reinhardt I’m following this Blackbeard well (in 70 feet of water in the Gulf of Mexico and operated by McMoRan Exploration Co.) with a lot of interest. It may be the biggest discovery in 40 years. The K-2 Field that Anadarko Petroleum found in 2002 has become the model they’re looking at.
It’s been drilled to 32,997 feet below the mudline, the deepest well ever below the mudline. That’s more than six miles deep! It actually takes three days just to get the drillpipe out of the hole, a day to check the blow-out preventer and three more days to go back in the hole—so every two weeks, they lose a week, because the Minerals Management Service requires them to check the BOP every two weeks. It’s an unbelievable well. It truly is history-making.


Investor What’s your outlook for 2009?
Reinhardt I guess I’d say I’m sanguine. I am somewhere below optimistic and a bit above miserable. (Laughs.) I don’t think the price of oil and gas can stay down for long. I would avoid refinery stocks though. There’s going to be a lot of new refining capacity coming on in Asia next year. But I don’t know why good E&P companies can’t have several more good years. We just got too far ahead of ourselves with those high commodity prices. It was destroying demand. We need to be at a level that permits the world’s economy to thrive.


Investor What’s your commodity-price outlook?
Reinhardt I personally think we’re going to end up in the $80 to $90 range because, with the 9% decline curve worldwide (and the 20% decline in North America), these low oil prices can’t be sustained. Oil has to remain at a level the country can live with, and one that doesn’t destroy demand, but encourages drilling.
The amazing thing to me is that almost 33% of the gas production in the Gulf of Mexico is still shut-in after Hurricane Ike, yet gas prices refuse to go up. I was talking the other day to Jim Bob (Moffat, co-chairman of McMoRan) about it and he can’t figure it out either. The present gas price is ridiculous. I don’t believe it can stay at its present level of just over $6 for long.
But until this banking situation gets completely resolved, these companies are scared, so they are staying as liquid as possible, even though they may have a strong balance sheet and plenty of cash. It’s a case of survival and a strong balance sheet.

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