Independent producers posted strong fourth-quarter 2004 increases in both production and reserves. Ultra Petroleum rose to the top rank in both categories. "...Ultra is well-positioned to continue delivering industry-leading organic proved reserves and production growth for the next several years," says Michael Bodino, an analyst with Sterne, Agee & Leach. His 12-month target price on shares of the company is $58. Ultra has amassed nearly 3.5 trillion cubic feet equivalent of net proved and probable reserves in its Rockies-focused exploration program. Range Resources Corp. receives a nod from Rehan Rashid, an analyst with Friedman Billings Ramsey, who expects above-average organic production growth through 2007 and possibly beyond from the company. He suggests keeping an eye out on Range's Appalachian refrac program, Trenton Black River deep and shallow activity, Pennsylvania shale and coalbed-methane (CBM) work, and its Gulf Coast programs. Each is currently in some stage of testing. Rashid adds that Range has "a deeper management team than its small-cap peers." His target on Range stock is $29.25. Barry Borak, director of energy research at Foresight Research Solutions, is impressed by XTO Energy. "Large-cap, liquid XTO is the 'go-to' name in the group, and trades like it," he says. "The company's best-in-class returns, low-maintenance capex needs, highly visible unit volume-growth profile, and history of accretive growth acquisitions all suggest the current premium is reasonable, if not modest, relative to its peers." XTO is currently expanding its position in the Barnett Shale in North Texas by buying Barnett-focused Antero Resources. Borak has a target of $50 on shares of XTO. As for Noble Energy, Borak says, "The company's aggressive, drillbit-oriented capital budget now provides highly visible 2005 unit-volume growth, which should further narrow the common stock's valuation discount." Noble's outlook will improve further with the second-quarter closing of its Patina Oil & Gas acquisition, the start-up of three major deepwater fields with expected total production of about 34,000 barrels of oil equivalent (BOE) per day and some promising Gulf Coast and Gulf of Mexico deep exploration tests. He projects 10% organic growth in 2005 overall. Brad Beago, an analyst with Calyon Securities (USA) Inc., is also convinced of Noble's promise. He has an Add rating on the stock and a price target of $70. Some other producers fall under other categories-recovery stocks, good-things-to-come and steady performers-the analysts say. Recovery stocks include Occidental Petroleum and Vintage Petroleum. Jay Sullivan with Foresight Research Solutions says Occidental's financial turnabout has been remarkable. "From near-insolvency, the company today enjoys one of the strongest balance sheets and highest financial returns in the industry. Though Oxy's oil and gas company aspirations continue to be taken lightly by many investors, we think that is a mistake. We see many opportunities ahead...." Opportunities include the sale or swap of Oxy's shares in Lyondell Chemical; acquisitions in the Permian Basin and San Joaquin Valley; a long-awaited Libyan reentry; a large dividend increase; and heated M&A activity in the energy sector. He has a $70 price target on the stock. As for Vintage Petroleum, Beago says its turnaround is showing results. "During 2004, Vintage completed a number of steps to revitalize itself. These include substantial drillbit production growth in Argentina, first production in Yemen, the sale of its Canadian operations, a return to the property-acquisition market, and dramatically reducing its debt." He encourages investors to look deeper at the stock. "We believe Vintage represents the classic value play...[It's] a company that took some knocks in the past, but has now returned to growth and profitability." He has a $35 target on the stock. Other producers that are shape-shifting are Southwestern Energy, Anadarko Petroleum and Newfield Exploration. Amir Arif, an analyst with Friedman Billings Ramsey, is interested in Southwestern Energy's opportunities in the Fayetteville Shale play in the Arkoma Basin, and in East Texas it expects to drill 86 wells versus 70 in 2004. Arif has a $72 target on the stock. Bodino agrees that Southwestern is one to watch. "With continued development opportunities in the East Texas Basin and the traditional Arkoma Basin, combined with success from its Desoto project in the Fayetteville Shale, Southwestern has accumulated a well-balanced drilling inventory with significant upside potentially through the end of the decade," he says. As for Anadarko, the company has reduced debt by $1.2 billion and repurchased 20.3 million shares for $1.3 billion. At year-end 2004, it had almost $900 million in cash. "As a result of the sales, Anadarko has been able to focus on the higher-return, foundation assets, which should drive growth and returns," Bodino says. "In addition, they have positioned themselves with an inventory that should allow them to meet or achieve their production goals and allow them to keep costs down." He has a target of $70 on the stock. Rashid notes that Newfield Exploration has diversified its asset base through key acquisitions in 2004-Gulf of Mexico assets from Denbury Resources and long-lived Rockies assets from Inland Resources. He expects Newfield's discoveries in the deepwater Gulf of Mexico, U.K. North Sea and onshore Texas may give the company 250 billion cubic feet equivalent of new reserves. "But with the drilling results on the ultradeep [Gulf of Mexico] prospects not expected until 2006, we would remain patient, buying on pullbacks." He has a 12-month target of $80 on the stock. Meanwhile, Wall Street darling Apache Corp. continues to win favor. The company has posted its 25th annual production gain in its 26 years of business and reserves have grown a 19th consecutive year, Rashid notes. Its reserves now total 12 trillion cubic feet equivalent, and fourth-quarter 2004 daily production averaged 2.76 billion cubic feet equivalent. Rashid adds, however, that "given the extremely tight nature of the acquisitions market and the company's still-evolving exploration program, we remain wary of the stock's ability to further expand valuation multiples." He has a 12-month price target of $58 on the stock.

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