November 29, 2006: Oil and gas???? Read on...

According to a respected energy analyst a report I received today,the upcycle in oil prices are at an end, but upstream costs are still rising in the oil and gas industry, and this is likely to continue into 2008.

A survey of 48 world-wide oil and gas producing companies suggests that total unit costs will rise by 20% versus 2005. Not all companies are affected equally.

The same survey indicates that total upstream capex for these 48 companies will have risen by an astounding $50b or 33% from 2005 to $203b.

Access to lower cost/high value resources is critical if producers are to maintain margins in a flatter oil price environment. Not all companies, says the report, will be able to control these costs.

Rising costs are across all international boundaries. Drillers and service providers should be able to recoup higher costs through higher pricing.

The following companies are recommended as being able to function in this new environment, and are recommended for consideration if oil and gas-type companies are to be in your portfolio:

Anadarko Petroleum (APC)
Denbury Resources (DNR)
Devon Energy (DVN)
Hess Corporation (HES)
LUKOIL (LUK /LKOH.RTS)
Norsk Hydro (NHY.OIL)
Occidental Petroleum (OXY)
Petrobas (PBR)
Plains Exploration and Production Company (PXP)
Range Resources (RRC)
Royal Dutch Shell (RDS)
Statoil (STL.OL)
XTO Energy (XTO)

Also mentioned was Chesapeake Energy (CHK) because of outstanding management that has been navigating extremely well to date.

Consideration of Canadian Energy Trusts are still worth a look (see earlier post)for yield, Watch the politics in Canada closely.