While there are still a handful of trading sessions remaining, I think I can safely say that 2007 was a very good year for energy investors. The entire sector is up nearly 30% year-to-date, roughly 10 times the broader market's return. So pat yourself on the back if you made the Foolish decision to include some energy exposure in your portfolio. Now, let's move on to the more important task at hand -- getting a handle on 2008.

Because forecasting the future price of oil or natural gas is utter folly, I'm left to take most of my cues from what the companies themselves are saying about the near future. A good place to start is to have a look at the preliminary forecasts of some exploration and production (E&P) companies. We'll start small, and work our way up to the behemoths.

Big, bigger, best?
Just this week, mid-cap Quicksilver Resources (NYSE:KWK) released its capital budget and production forecast for the year ahead. The shares exploded in response, and it's not difficult to see why. Net of divestitures, the company is forecasting more than 70% production growth. Even this late in the game, it appears that investors are still underestimating the mighty Barnett shale, which is putting the spring in Quicksilver's step. The Barnett is very much a 2008 story, as its prolific production continues to reshape the natural gas landscape.

Devon Energy (NYSE:DVN), one of the large independents, is having a dynamite 2007, with 11.5% production growth now forecast for the full year. While that double-digit dash has been impressive, it might not continue in 2008: Devon's production guidance ranges from 8% to 11% growth. There are plenty of bright spots, though. Reserve replacement, which keeps the E&P engine from running out of gas, looks rock-solid at upwards of 150% of production. Also, Devon's per-barrel finding costs are actually guided downward in 2008. While I wouldn't claim that cost inflation has been whipped, Devon demonstrates that it's possible for independent E&Ps to keep costs in check in the year ahead.

The industry giants have slated somewhat higher spending boosts than Devon. ConocoPhillips (NYSE:COP) booked a 13% bump, while Chevron (NYSE:CVX) announced a 15% rise in its capex budget. Integrated firms (the ones that produce, refine, and market hydrocarbons) have probably been hardest-hit by escalating industry costs, because of their operations in markets where labor and equipment is particularly constrained. Without the growth profile of a mid-cap player, or the cost control of an independent, it's not obvious to me why anyone would be eager to own an integrated oil company going into 2008. I know these firms tend to hold up better in cyclical downturns, but if that's your mindset, then why not buy a pipeline company -- or a toilet paper company, for that matter? My money is on the explosive upside of smaller upstream operators.

The energy ecosystem
So what does this E&P roundup tell us about the outlook for energy services firms? Well, it certainly implies that a diversified service provider like Schlumberger (NYSE:SLB) isn't going to be twiddling its thumbs. To drill down on more specialized segments, however, it's critical to look at some trends occurring both on- and offshore.

With the hunt for the next great gas play in full swing, 2008 is all about catering to the E&Ps targeting unconventional resources. This means that if you're looking at a land driller, its rig fleet had better offer significant directional/horizontal drilling capabilities; I've already indicated which driller has maneuvered its way into my heart. Aside from the drillers, anyone who can help to map these unconventional reservoirs or to enhance their production should be well-positioned going into the new year.

In that vein, Transocean (NYSE:RIG) fans won't be surprised to hear that deepwater exploration continues to be a major growth driver worldwide. Yep, 2008 promises to be another strong year for offshore drillers, seismic surveyors, and subsea specialists alike. Of course, this trend is now so obvious that even a dry bulk shipper is diving in. For that reason, deepwater-derived bargains are few and far between. While it's up to you to decide what "cheap" is, I will leave you with two deepwater ideas.

Shares of Bolt Technology (NASDAQ:BTJ) got beaten down over the summer, and the short interest in the seismic equipment maker remains inexplicably high, despite tremendous results. Offshore engineering and construction specialist Acergy SA has also stumbled recently, what with the triple-threat of a tepid order flow, a troubling tax audit, and a top executive departure. Provided that Acergy can move beyond these short-term setbacks and get back to securing big contracts, it seems like one of the better bets in the subsea space.

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