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Mix-Ansicht- Drilling for Bush - Welche Ã-lfirmen vom neuen Gesetz profitieren könnten - off-shore-trader, 21.11.2003, 16:53
Drilling for Bush - Welche Ã-lfirmen vom neuen Gesetz profitieren könnten
-->Could Be an Early Christmas for Energy Companies
By Christopher Edmonds
Special to RealMoney.com
11/21/2003 07:23 AM EST
To some, energy legislation pending before the Senate looks like an early Christmas present. Specifically, oil and gas producers and a handful of others stand to reap billions of dollars in tax benefits from generous Republicans looking for campaign contributions.
To others, especially the energy companies that stand to benefit from the bill, it's a new, comprehensive, long-overdue energy policy that marks the first step in weaning the U.S. from foreign sources of energy.
On the other hand, some think it's just bad public policy.
In reality, it's a combination of all of the above. The legislation is full of handouts, right when they're expected in an election year. Arguably, that isn't optimal public policy, but rather a pragmatic response to what is possible in Washington.
Although it will be months before the rules and regulations that will implement any new legislation are promulgated, let's take a look at some general themes and which companies might see some unique opportunities.
Drilling for Bush
Given the Bush administration's past involvement in the oil and gas business, it's not surprising that Republican-crafted legislation contains a plethora of incentives for drilling across the U.S.
The energy package contains incentives for the type of"tight gas" drilling that is done in the Rocky Mountain region. Producers in the Rockies include large independents like Burlington Resources (BR:NYSE), Devon (DVN:Amex) and Anadarko (APC:NYSE), as well as smaller exploration-and-production companies such as Tom Brown (TBI:NYSE) and Evergreen (EVG:NYSE), and even smaller names like Petroleum Development (PETD:Nasdaq).
Other companies that have benefited from these"tight gas" credits in the past, like Quicksilver Resources (KWK:NYSE) and St. Mary Land and Exploration (SM:NYSE), may also get a boost from the bill.
Potential Winners
Here are some of the primary beneficiaries of the energy bill
Company Current Price
Burlington Resources (BR:NYSE) $50.45
Devon (DVN:Amex) 48.95
Anadarko (APC:NYSE) 44.64
Tom Brown (TBI:NYSE) 27.53
Evergreen (EVG:NYSE) 27.67
Petroleum Development (PETD:Nasdaq) 13.78
Quicksilver Resources (KWK:NYSE) 29.97
St. Mary Land & Exploration (SM:NYSE) 24.75
Source: TSC research
A company certainly won't turn down a tax credit, but will these credits lead to increased drilling, as the public policy intends? Interestingly, some say the impact of past tax credits has been only marginal. In fact, one company that benefited from past credits said it has never decided to drill a prospect exclusively because of the incentives.
Also, some E&P companies may seek to acquire properties that could provide tax credit benefits. Already, there's buzz about oil companies that are looking to acquire private producers. That's likely to drive the price of E&P assets higher -- especially those that stand to benefit from the new energy bill -- in the coming months.
Powerful Mergers?
A number of provisions in the energy legislation also affect the electric power business, and TheStreet.com's Melissa Davis does a nice job of reviewing many of them. One other is the possible repeal of the Public Utility Holding Company Act, or PUHCA.
PUHCA has often been cited as the reason for the lack of additional mergers in the electric utility industry because it places restrictions on both non-utility and multi-utility holding companies. With the repeal of PUHCA, those in the merger camp argue, a renewed spark is likely in the utility merger parade.
Indeed, Warren Buffett has indicated that he'd be willing to invest billions in the electric power business if PUHCA were repealed. Many smaller, regional utilities could be targets of their larger brethren if the legal maneuvering involved in mergers weren't as complicated.
However, the merger game is more complex than just PUHCA. A web of state regulations also complicates utility mergers. With the recent challenges in the sector, state regulators are more vigilant about protecting ratepayers in any proposed merger. You only need to look at the early issues in Exelon's (EXC:NYSE) attempt to buy Illinois Power from Dynegy (DYN:NYSE) to see -- even without PUHCA -- how challenging a utility merger can be.
There's also a lot of talk about potential mergers in the upper Midwest, where Alliant (LNT:NYSE), Wisconsin Energy (WEC:NYSE), WPS Resources (WPS:NYSE), Black Hills (BKH:NYSE), OtterTail Power (OTTR:Nasdaq), Xcel (XEL:NYSE) and others are vying for market share and economic scale. It's difficult to handicap the possible combinations, but investors are focusing on that region for possible merger activity over the next several months. Also, those utilities aren't far from the fairway of Buffett's Mid American energy operations.
However, don't look for a rash of mergers to occur immediately, even if PUHCA's repeal is in the final energy bill. Deals take time, especially when so much regulatory complexity is involved.
Certainty
Plenty of other provisions in the energy bill could impact investors, many of which have already been addressed in these pages. However, as I've noted in recent missives, the real benefit -- in my view -- is certainty. Speculation and uncertainty have caused confidence among energy companies to slip, leaving them waiting for direction before committing to new drilling programs.
With any bill, energy policy -- at least for now -- becomes more certain, and that allows better planning among businesses. The simple fact that a new energy policy has been adopted may be the most energizing impact of all.
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