With oil and natural gas prices expected to remain high and earnings continuing to grow, Prudential Equity Group on Monday raised its ratings on exploration and production companies to “favorable” from “neutral” and lifted its commodity price forecasts to $6.50/Mcf for gas and $50/bbl for crude oil through the rest of 2005 and into 2006.

Prudential also raised earnings estimates for producers on average by 9% in 2005 and by 13% in 2006. Analyst Jason Gammel wrote in a research note that Prudential believes “there are very few supply-side risks to the high-price environment,” and “very few visible sources of incremental oil supply that would negatively affect pricing conditions.”

Commodity prices are expected to remain high for the next 12-18 months, and as a result, producer earnings and cash flow also are adjusted higher, Gammel told clients.

“This dynamic should give the stocks the ability to trade toward what we had previously defined as our upside potential,” he wrote. Although natural gas fundamentals “are not as robust…we believe that natural gas prices will continue to be supported by the overall petroleum complex.”

Prudential substantially lifted the price targets on 12 oil and gas stocks that it covers, including Anadarko Petroleum Corp., to $92/share from $71; Apache Corp., $81 from $64; Burlington Resources Inc., $70 from $52; Chesapeake Energy, $29 from $23; Devon Energy Corp., $64 from $53; EOG Resources, $71 from $55; Kerr-McGee Corp., $86 from $70; Newfield Exploration, $49 from $40; Occidental Petroleum, $102 from $79; Pioneer Natural Resources, $48 from $38; Pogo Producing Co., $62 from $47; and XTO Energy to $46/share from $38.

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