Mid-Sized Domestic E&Ps Lead the Pack in 2000

During a year that saw fears of natural gas shortages send prices through the roof, spurring E&P companies into frenzied drilling, energy company shares reached a median total return of 48% in 2000, according to a new report by John S. Herold, Inc., a Connecticut-based independent energy research consulting firm.

In the report titled "Oil Share Market Performance 2000," Herold states that natural gas producers, drillers and the midstream sector led the growth, with all but one of the peer groups outperforming the Dow Jones Industrial Average.

"The price recovery that began in 1999 has enabled many companies to adopt more aggressive exploration and capital spending strategies, particularly aimed at finding and developing U.S. natural gas reserves," said Art Smith, CEO of Herold. "The market has recognized the value this represents, rewarding, by providing capital for successful players in these sectors. We expect this recognition to continue in 2001."

The Herold report, which followed 307 publicly traded energy companies in every sector of the international oil and gas industry, showed the biggest winners in 2000 were U.S. E&P companies. In response to high natural gas prices, mid-sized domestic E&Ps posted a 118.5% median gain, followed

by large domestic E&Ps and small domestic E&Ps with gains of 94.1% and 79.8% respectively.

According to the report, Canadian E&Ps trailed their U.S. counterparts for the first time in three years, which also fueled an active merger and acquisition market in the North country. Overseas E&Ps also posted a median return of 22.7%.

Reinforcing the unusual 2000 theme that "smaller is better," The Herold study showed that large integrated oil companies as a whole, only posted a modest 10.1% median gain, while the overseas integrated oils, due to weak performance by South American and Eastern European companies, showed an overall 16.1% decline.

Other notables within the energy industry study were pipelines, oil service and the drillers, which posted median returns of 70.6%, 50.1% and 49.3% respectively. The consulting firm said that the most surprising result from this year's study, was the turnaround of the marketing and refining sector. The segment came from a 17.7% decline in 1999, to a 32.4% total return for the year 2000.

The firm said that the most impressive performances within the industry came from a handful of companies. Among companies trading above $5 per share, Cross Timbers Oil posted a 359% return, followed by Key Production with a 347% gain, and Prima energy and Swift Energy, both posting 227%.

Of the U.S. integrated oil companies, Amerada Hess led the pack with a 29% return, followed by Phillips Petroleum with 21%, and Conoco with 16%. Petro-Canada led the International integrated oil sector with an 87% gain. The poorest return in the sector came from Repsol YPF, which lost 29% of its year end 1999 value according to the Herold report.

For more information on the 21-page report, contact Tom Sommers at tsommers@sommersassoc.com.

Alex Steis

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