No one is a font of all knowledge on the sometimes skittish and always challenging securities markets. That's true of well-known energy seer T. Boone Pickens, who not so many years ago was urging us to believe that wind power was simply waiting for widespread acceptance before blowing all our problems away.
That contention now seems to be largely a thing of the past, and Boone has moved to a more sensible stance that the nation should boost its use of natural gas as a transportation fuel. He continues to believe in the desirability of a movement toward increased use of the cleaner-burning hydrocarbon -- as do I -- despite the U.S. Senate's less than impressive defeat of the so-called NAT GAS Act in mid-March. I'm always eager to tap Boone's -- I can call him that; I've met him -- notions about compelling energy names. I received a new dose of thoughts when he appeared on CNBC Tuesday.
From a big-picture perspective, Pickens is obviously ebullient about our nation's energy opportunities. "To have these resources show up in America at this time is divine intervention," he said. And as if crediting a higher authority weren't enough, he went on to add that, "we (in the U.S.) have the cheapest energy in the world."
I concur on both counts. And while I have my own thoughts about which energy stocks are especially attractive -- EOG Resources (NYSE: EOG ) and Apache (NYSE: APA ) are among my preferred independent producers -- I'm always pleased to receive suggestions from this former geologist and lifelong energy practitioner.
Biggest in the Bakken
The first-mentioned of Pickens' preferences was Continental Resources (NYSE: CLR ) , which concentrates on U.S. oil production. The Oklahoma City-based company sits atop the biggest of all leaseholds in the Bakken formation of the Dakotas and Montana, the nation's most sizzling onshore oil-producing play. Its activities there and in Oklahoma's Anadarko Woodford play and the Red River Units play, also in the Dakotas and Montana, have propelled it to a spot among the top 10 producers of petroleum liquids in the U.S.
In the most recent quarter, Continental was able to increase its barrels of oil equivalent production by 14% sequentially. On a year-over-year basis, its production jumped by a whopping 66%. As CEO Harold Hamm said as the results were released, "Along with good well performance, the two factors driving our results are faster drilling cycle times and our increased working interest ownership in Bakken wells."
Talking sense in the Senate
Coincidentally, at about the same time that Pickens was appearing before a national television audience, Hamm was testifying before the Senate Finance Committee, defending the continuance of the deductibility of "intangible drilling costs" by oil and gas producers. Under long-standing tax law the companies can deduct labor and other expenses incurred in the drilling process. "We could stop this energy renaissance. We certainly do not want to do that," Hamm told the lawmakers regarding the possibility of revoking the deductions.
On the other side was Dale Jorgenson, a Harvard economist who called a potential tax reform an opportunity to fashion a new tax on fossil fuel use that would create, "a truly level playing field ... [needed] to recognize the environmental hidden costs associated with the combustion of fossil fuels." There was no indication whether such a leveling would include loan guarantees for nascent fossil fuel companies like those that have been awarded to the likes of Solyndra.
Pickens' other recommendation was Pioneer Natural Resources (NYSE: PXD ) , an Irving, Texas-based company that is active in such liquids-rich U.S. plays as the Permian Basin, the Eagle Ford, the Barnett Combo, and northern Alaska. It's also a producer of coal bed methane in the Raton Basin of southeastern Colorado. Management expects production to grow by at least 20% annually through 2014. And with liquids currently accounting for 58% of the company's output, that share is expected to increase to 65% during the next two years.
Changes at Chesapeake
When asked whether his energy funds having exited troubled Chesapeake Energy (NYSE: CHK ) indicates that he has soured on the company, Pickens responded that he has not. Rather, he said, he has moved for now to producers with more immediate returns than the gas-centric Oklahoma City company is likely to provide. "You get [activist investor] Carl Icahn and Southeastern Asset Management [the company's largest shareholder] involved, and you're going to see some changes at Chesapeake," he said. Icahn and Southeastern together will have approval authority over the appointment of five of Chesapeake's board members.
For now, however, while crude prices have slid during the course of this year, they remain comparatively higher than natural gas levies. On that basis, and because their management teams clearly recognize that they're guiding public companies -- unlike the crew at Chesapeake -- I urge you at the very least to add Continental Resources and Pioneer Natural Resources to your Motley Watchlists.