Your Career Matters: Energy Concerns Find M.B.A.s Are Hot Commodity
The Wall Street Journal, 04/03/01

'Raise It While You Can'; Talk of New Curbs Whets Funds Frenzy
The Washington Post, 04/03/01

FPL, Entergy Blame Each Other As They Call Off $8 Billion Merger
The Wall Street Journal, 04/03/01

Enron Starts Trading German Gas Online
Dow Jones Energy Service, 04/03/01

PGE wants to convert manure to methane
Associated Press Newswires, 04/03/01

SHARE OWNERSHIP CAP TO BE LIFTED ON AUSTRALIAN GAS LIGHT LTD STOCK
Asia Pulse, 04/03/01

SMARTMONEY.COM: Is It Time To Sell Energy?
Dow Jones News Service, 04/02/01




Your Career Matters: Energy Concerns Find M.B.A.s Are Hot Commodity
By Kemba J. Dunham
Staff Reporter of The Wall Street Journal

04/03/2001
The Wall Street Journal
B1
(Copyright (c) 2001, Dow Jones & Company, Inc.)

Elena Robciuc says she wasn't specifically looking for a position at an 
energy company when she began her job hunt last fall. But after weighing all 
her options, the 25-year-old M.B.A. candidate turned down two offers from 
investment banks to accept a job at Enron Corp. as an associate for a base 
salary of nearly $80,000. 
"At Enron, I'll be able to formulate its strategic direction," says Ms. 
Robciuc, a native of Romania who will graduate from Southern Methodist 
University's Cox School of Business in May. "It's much more of a hands-on 
involvement than what I'd experience at an investment bank."
Watch out, Merrill Lynch. Energy companies are starting to recruit 
masters-of-business-administration candidates with a vengeance, offering 
them, if not top dollar, at least the chance to advance in a changing, 
challenging field. Deregulation has allowed energy companies to expand into 
such areas as technology, broadband and financial services -- creating a big 
demand for leadership. 
"Because of deregulation in our industry, there's a strong need for people 
with financial acumen and real expertise in quantitative methods," says Paul 
Duran, former staffing and diversity manager at TXU Corp., a Dallas energy 
concern, who helped get the company's new M.B.A. Associate program off the 
ground. After recruiting at business schools such as the University of 
Chicago, UCLA and Tulane University, the company made job offers to 17 
M.B.A.s last fall and so far has received eight acceptances. 
Phillips Petroleum Co., an integrated oil and gas company in Bartlesville, 
Okla., also has stepped up its M.B.A. recruitment efforts. Officials visited 
the business schools at Rice, Purdue and the University of Texas last fall, 
mainly in search of business-development specialists and finance associates. 
It hired two M.B.A.s last year and will add at least three more this year. 
Another oil giant, BP Amoco, hired six students from Indiana University's 
Kelley School of Business in Bloomington last year. 
Starting compensation packages range from $88,000 to $110,000 -- lower than 
those that investment banks and consulting companies offer new M.B.A. hires, 
which can run as high as $145,000. But energy companies are luring M.B.A.s 
with growth potential. 
"Many [energy companies] have employees who are 50 years old and aren't 
equipped with the recent business thinking," says James Smith, a professor of 
finance at the Cox School. "So M.B.A.s can become the top dog in these 
organizations pretty fast." 
It's a possibility that has M.B.A.s excited. Last July, Steven Hartman, a 
33-year-old student at the Cox School, re-energized its Energy Club, which 
helps students learn about the industry and now has about 40 members. About 
half of them took a field trip in January to check out such Houston energy 
concerns as El Paso Corp., Enron and Landmark Graphics Corp., a Halliburton 
Co. unit. 
"The energy industry is no longer tried and true" because of deregulation, 
says Mr. Hartman, who will join El Paso as a senior associate in July. "What 
makes it appealing to many students is that it's the industry of the great 
unknown." 
There is another lure as well. "Those of us who are going into energy are 
confident that our jobs will be there" after graduation Mr. Hartman says. 
Other students are drawn by the lifestyle made possible at energy companies. 
Eric Van Stone, a 30-year-old M.B.A. candidate at Rice University's Jones 
Graduate School of Management in Houston, turned down a travel-heavy 
consulting job at Arthur Andersen for a post at Houston's Reliant Energy Inc. 
Another Rice business student, 28-year-old Kenneth Jett, adds that some 
energy companies -- many of which are based in sunny Houston -- offer shorter 
working hours than many investment banks and consulting companies. 
"It's the total lifestyle package that's drawing people to the industry," 
says Mr. Jett, who will join Enron as an associate in August. 
M.B.A.s aren't the only students gearing up for a career at an energy 
company. The University of Oklahoma's undergraduate energy-management program 
has grown from three students in 1997 to more than 65 in 2001. The program -- 
a mix of finance, geosciences and law classes -- lasts about 4 1/2 years. At 
graduation, most students have between two to three energy-related 
internships on their resumes with starting salaries ranging from about 
$55,000 to more than $65,000. 
Energy companies are eager to hire these younger students as well. This year, 
all 12 seniors in the program accepted jobs with such energy concerns as 
Enron, Duke Energy Corp. and Exxon Mobil Corp. As far as the underclassmen 
are concerned, program director Ted Jacobs says that he has "more internships 
than I've got students available." 
The energy industry has had a mixed record of recruiting at elite business 
schools. Exxon Mobil was the only energy company to visit Stanford's Graduate 
School of Business last fall -- and only a few people were interested. But 
the Wharton School at the University of Pennsylvania says it has seen a 
dramatic increase in the number of recruiters -- and a good student turnout 
so far. The companies soliciting this year's graduating class include Public 
Service Enterprise Group Inc., Reliant Energy, Duke Energy and Enron. 
To jazz up their recruiting pitch, energy companies -- normally considered 
stodgy -- are showing up with glossy Power Point presentations manned by 
sharply dressed executives, some schools say. 
Peter Veruki, executive director of career planning and admissions at Rice 
University, adds that some of these companies aren't even positioning 
themselves as "energy companies," but instead are emphasizing their 
technology, broadband, risk-management and trading areas. He says they are 
taking this approach because "they don't want to hire traditional energy 
people."

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. 


A Section
'Raise It While You Can'; Talk of New Curbs Whets Funds Frenzy
Mike Allen and Juliet Eilperin
Washington Post Staff Writers

04/03/2001
The Washington Post
FINAL
A01
Copyright 2001, The Washington Post Co. All Rights Reserved

Campaign finance is very much on the minds of House members, and not just 
because a Senate bill that would rewrite the rules of the money chase in 
federal politics is about to come their way. 
It is also because of the $1,000-a-head Cajun cookouts that Rep. W.J. "Billy" 
Tauzin (R-La.) is holding today and tomorrow for two fellow House members.
And because of the "Greatest Show on Earth" pre-circus fundraiser that Rep. 
Adam Putnam (R-Fla.) is holding Thursday, with an admission price of $1,000 
for a political action committee and $250 for an individual. 
And because of the Richmond International Raceway fundraiser that Rep. Robin 
Hayes (R-N.C.) is holding in June, with a "Hot Laps and Lunch" package for 
$1,000 per person, or a "Speed Racer" package for $5,000 for each political 
action committee. 
While the debate over campaign finance reform has captivated Capitol Hill by 
day, lawmakers and political parties are working their donors ever more 
aggressively by night. Lobbyists and political aides say this spring's 
fundraising pressure is hitting earlier and more furiously than in any 
previous election season. They say the frenzy is fed both by the likelihood 
that money will be tougher to raise under new rules, and by an election 
season in which just a few races could tip party control in the House or 
Senate or both. 
The activity is especially feverish at the party committees, which are the 
conduits for the "soft money" -- the huge, unregulated sums from unions, 
corporations and wealthy individuals -- that would be banned under the Senate 
bill. 
"There clearly is an atmosphere of 'raise it while you can,' " said a 
Republican lobbyist who asked not to be named. "It's in the front of the mind 
for everybody involved in raising this stuff." 
Terry McAuliffe, chairman of the Democratic National Committee, said he has 
begun emphasizing smaller hard-money donations, which would remain legal and 
are a traditional strength of Republicans. "I'm retooling and reshaping how 
our party thinks about fundraising," McAuliffe said from Alameda County, 
Calif., where he was speaking at a $10-a-person Democratic dinner. 
Such events are the exception. In the same ballroom of the Washington Hilton 
hotel last month, House Republicans raised $7 million in one evening and 
House Democrats raised $5 million -- nearly double what each had raised at 
similar dinners two years before. 
Bush and Vice President Cheney, who have stayed away from fundraisers since 
the election, are pitching in. Bush is expected next month at a Republican 
National Committee fundraiser, and in June at a President's Dinner that will 
raise more than $10 million for the GOP's Senate and House campaign 
committees. Cheney was the keynote speaker at the House Republican dinner. 
Lawmakers, eager to bank soft money, are setting increasingly ambitious 
targets for the Washington lobbyists charged with mining the business 
community. In a meeting with nearly 20 lobbyists before the House 
Republicans' spring gala, Rep. Bill Thomas (R-Calif.) -- who as Ways and 
Means Committee chairman oversees the crafting of tax legislation -- asked 
that each pledge a specific amount to raise. 
According to several participants, the average amount was $100,000. Many of 
the lobbyists later entertained a member of Congress at their table. Before 
the National Republican Congressional Committee dinner, Thomas sent 
colleagues a letter saying, "Your attendance is imperative if we are to 
remain successful in our fundraising efforts." 
At the House dinners, soft money played a critical role in filling the 
parties' coffers. To serve as a "dinner host" at the Republican gala, donors 
had to give $100,000. Twenty-four corporations and one individual, Cincinnati 
Reds owner Carl Lindner, paid up. 
According to Republican fundraisers, the tables requiring $25,000 in soft 
money went at a faster clip than those asking for $10,000 in the more 
restricted hard money. 
House Democrats also relied heavily on large contributions. A spokesman for 
the Democratic Congressional Campaign Committee said soft money accounts for 
roughly half of the committee's $7.5 million take for the first quarter of 
this year. 
The party events are growing ever more lavish. At the House GOP dinner, Meat 
Loaf was the master of ceremonies, Otis Day and the Knights performed after a 
dinner of beef tenderloin and grilled sea bass, and the House committee 
chairmen were welcomed to the strains of "The Boys Are Back in Town." 
Donors were given a "Philip Morris Shopper's Guide," listing 26 tobacco 
products, and little notepads from Enron, the Houston energy conglomerate 
that is Bush's largest lifetime patron. Wine was provided by UST Inc., which 
owns several wineries and the U.S. Smokeless Tobacco Co. 
Party officials also said that with the spiraling costs of campaigns, 
politicians have little incentive to eschew large donations at this point. 
"We're not dealing in the hypothetical," said NRCC spokesman Carl Forti. 
"We're going about our fundraising operations under current law." 
While a new law is debated, lawmakers are moving to exploit the last months 
of the old one. Less than two months ago, House Minority Leader Richard A. 
Gephardt (D-Mo.) became one of the last Hill leaders to establish a 
soft-money political action committee. The group's existence was first 
reported Monday by the newspaper Roll Call. 
"We're fully prepared to fold tent the day campaign finance reform is 
passed," said Gephardt's spokeswoman, Laura Nichols. 
Much of the current money drive is complicated by the lack of certainty 
surrounding future reforms. For instance, Sen. Mitch McConnell (R-Ky.) said 
he does not believe soft money would be able to be spent after a campaign 
finance law was signed if it were similar to the Senate version. 
Party officials said they are unsure of when the law will take effect and 
whether they will still be able to use donations already collected. "Those 
are very big questions that we don't have the answers for," DCCC Executive 
Director Howard Wolfson said. 
Party operatives said privately that they are already drawing up contingency 
plans to function under a new legal regime.

http://www.washingtonpost.com 

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. 


FPL, Entergy Blame Each Other As They Call Off $8 Billion Merger
By Robin Sidel
Staff Reporter of The Wall Street Journal

04/03/2001
The Wall Street Journal
A4
(Copyright (c) 2001, Dow Jones & Company, Inc.)

FPL Group Inc. and Entergy Corp. pulled the plug on an $8 billion merger that 
would have created the largest electric utility in the U.S., and both sides 
immediately blamed the other for the eight-month-old deal's failure. 
The collapse, which marked the latest in a string of utility mergers to run 
into trouble, came just about two weeks after the companies warned of looming 
problems with the transaction.
The two companies announced the deal's termination in a joint statement, and 
then swiftly traded barbs about the reasons for the breakup by issuing 
separate news releases and holding dueling conference calls. 
FPL accused Entergy of discrepancies in its financial forecasts and said it 
lost faith in Entergy's management. Entergy said the deal was no longer a 
merger of equals, citing efforts by FPL to dilute the leadership roles of 
Entergy executives in the combined utility. 
"The board decided litigating a merger of equals for damages was a long, hard 
road and with all the changes taking place in our industry, we just needed to 
move on," said Wayne Leonard, chief executive of Entergy. 
Billed as a merger of equals when announced at the end of July, the deal 
called for FPL shareholders to own 57% of the combined company. Mergers of 
equals are hard to define, and Wall Street viewed FPL as the acquirer. FPL, 
of Juno Beach, Fla., is the parent of Florida Power & Light. Entergy, of New 
Orleans, serves customers in Arkansas, Louisiana, Texas and Mississippi. 
The union would have created the largest electric utility in the U.S., with 
6.3 million customers and more than 48,000 megawatts of generating capacity. 
The deal originally was valued at $7 billion but that climbed to $8 billion 
amid an increase in FPL's stock price. FPL also was to assume $6.9 billion in 
debt. 
It is the second failed deal for FPL, which saw merger discussions with 
Spain's Iberdola SA fall apart last year. 
By January, the warm feelings between Entergy and FPL had begun to chill, as 
FPL challenged 2001 and 2002 financial projections it had received from 
Entergy. 
FPL contends the earnings projections it received were pumped up by "several 
hundred million dollars" compared with Entergy's internal projections. 
Entergy defended its methods, saying the company has multiple forecasts based 
on various assumptions about business conditions. 
By February, FPL had hired high-powered attorney David Boies, who represented 
Al Gore in the Florida election controversy and worked for the government in 
its antitrust case against software giant Microsoft Corp. 
The partnership further disintegrated as executives clashed over management 
roles at the combined company. The merger pact called for Mr. Leonard to be 
chief executive and FPL Chairman and Chief Executive James Broadhead to be 
chairman. The Entergy side says they thought Mr. Broadhead was pushing Mr. 
Leonard out. "At that point, it had become a takeover, a hostile takeover," 
Mr. Leonard says. 
"FPL did lose trust and confidence in Entergy management," Mr. Boies said. 
Both companies waived the $215 million termination fee that was part of the 
merger agreement. A fee would be payable, however, if either company enters a 
similar transaction with another party within nine months. 
Despite the collapse, about eight top FPL executives already have collected 
some $60 million from the deal, because they were entitled to cash in 
compensation packages when shareholders approved the transaction in December. 
That was somewhat unusual, since compensation packages typically can't be 
cashed until a merger closes. An FPL spokeswoman noted that more than half of 
the amount would have vested within two years regardless of the Entergy 
transaction. She also noted that from now on compensation packages won't be 
triggered until a transaction is completed. 
Entergy executives weren't entitled to receive such so-called golden 
parachutes until the FPL deal closed. 
Wall Street analysts predicted both companies are likely to find other 
partners, since both are considered midsize utilities in a consolidating 
industry. 
The transaction is the latest utility deal to be stung by volatility in the 
nation's power markets and lengthy regulatory reviews. 
Consolidated Edison Inc.'s plan to buy Northeast Utilities has fallen apart, 
and Enron Corp.'s $2 billion agreement to sell its Portland General Electric 
unit to Sierra Pacific Resources is in jeopardy. Also, DTE Energy Co. and MCN 
Energy Group Inc. recently were forced to renegotiate terms of their merger. 
At 4 p.m. in New York Stock Exchange composite trading, Entergy was unchanged 
at $38, while FPL was down nine cents at $61.21. 
--- Troubled Electricity Deals

Acquirer: DTE Energy
Target: MCN Energy
Deal: DTE was to purchase MCN for $28.50 a share
Result: Renegotiated the price to $24 a share valuing the transaction
at about $2.24 billion.

Acquirer: Con Edison
Target: Northeast
Deal: Con Edison to purchase Northeast for $3.8 billion
Result: Northeast and Con Edison have sued each other for the merger's
failure.

Acquirer: Sierra Pacific
Target: Enron
Deal: Sierra Pacific to buy Enron's Portland General Electric for $2
billion
Result: Sierra Pacific has had difficulty selling generating assets,
which it had to do to be able to purchase PGE.

Acquirer: FPL
Target: Entergy
Deal: Merger of equals now valued at $8 billion
Result: Agree that if either company closes another comparable deal
within nine months it will have to pay a breakup fee.

Source: WSJ Research

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. 



Enron Starts Trading German Gas Online

04/03/2001
Dow Jones Energy Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

VENICE, Italy -(Dow Jones)- Enron Corp. (ENE) has expanded its online trading 
platform to include German gas, vice-president John Thompson said Tuesday. 
Enron Online had already quoted border prices for German gas, but is now 
quoting for gas within Germany, Thompson told the Power 2001 conference.
The development of gas trading in Germany has been retarded by the lack of 
easy network access and by high transportation costs. 
-By Geoffrey Smith, Dow Jones Newswires; 44 20 78429260

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. 


PGE wants to convert manure to methane

04/03/2001
Associated Press Newswires
Copyright 2001. The Associated Press. All Rights Reserved.

SALEM, Ore. (AP) - Oregon's energy future may be chewing cud in Bernie 
Faber's pasture. 
His 500 cows will provide tons of manure to be converted to methane to 
generate electricity in a pilot project operated by Portland General Electric.
The project is expected to generate about 100 kilowatts of electricity - 
enough for about 65 homes - by July. 
"When you consider how many dairy farms there are in Oregon, this could be a 
significant source of power," said PGE spokesman Mark Fryburg. 
About 89,000 milk cows were reported on state farms in 1999. 
PGE wants to perfect the technology at Faber's Cal-Gon Farm. If the company 
succeeds, small-scale power plants could become commonplace at Oregon dairy 
farms. 
"We would love to be able to engineer and design these things so we could do 
them at smaller and smaller dairies over time," said Jeff Cole, PGE'; biogas 
program manger. 
PGE officials also are interested in developing a 4.5 megawatt, 
methane-powered energy facility in Morrow County that could provide energy 
for about 3,000 homes. It would depend on manure from dairies relocating to 
the area to support a Tillamook County Creamery Association cheese plant. 
The disposal of livestock waste has become an expensive and complex problem 
for farms as environmental regulations tighten. 
A typical dairy cow produces about 150 pounds of waste each day. 
Methane-powered generators, such as PGE's project, reduce the odors 
associated with dairies and create useful byproducts: a nitrogen-rich liquid 
fertilizer and an odorless dry fiber that can be used to make potting soils. 
At Faber's farm, construction of a 28-foot high concrete tank where waste 
will be converted into methane is nearly complete. 
PGE officials compare the tank to a giant stomach, where bacteria in manure 
continues the digestion process and produces flammable methane. 
A modified, internal combustion engine will burn the methane for fuel and 
drive power turbines. After the manure is processed, the leftovers will be 
pumped through a solid separator, taken off site, and composted. 
Liquids will be stored at a lagoon at the dairy.

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. 


SHARE OWNERSHIP CAP TO BE LIFTED ON AUSTRALIAN GAS LIGHT LTD STOCK

04/03/2001
Asia Pulse
(c) Copyright 2001 Asia Pulse PTE Ltd.

SYDNEY, April 3 Asia Pulse - Australian Gas Light Company Ltd (ASX:AGL) 
shares rallied to a three week high today as the market reacted to news that 
a share ownership cap on its stock would be lifted. 
The energy giant's shares - which have fallen 13 per cent since a profit 
warning earlier this month - hit a high of A$11.02 (US$5.25), gaining 32 
cents or 2.99 per cent in early trade.
However, the share price quickly eased back to close at a more moderate 14 
cent, or 1.31 per cent, rise to A$10.84 (US$5.16). 
AGL announced after close of trade yesterday that the New South Wales 
government had agreed to a shake-up which would lift a current five per cent 
share ownership cap. 
At least one analyst predicted the lifting of the cap would leave AGL open to 
potential takeovers. 
"AGL could well be a takeover target as the global economy picks up and the 
big utilities start to expand," a BNP Paribas analyst said in a report today. 
The analyst said big utilities such as Utilicorp, TXU, GPU, Hutchison 
Whampoa, Singapore Power, Enron and AEP may be interested in AGL in the first 
half of the 2002 financial year, when the global economy should be stronger. 
AGL shares had slumped 13 per cent since March 8, after the energy giant 
warned of a flat full-year profit result. 
AGL posted a 14.5 per cent increase in half year net profit to A$208.1 
million (US$99.14 million), in line with expectations, but warned that second 
half profits would be lower because of seasonal factors, the slowing economy, 
and AGL's strategic transformation. 
The company's legislative reform follows 15 months of market anticipation and 
clears the way for a modern constitution. 
Under the changes - to be introduced by July 1, 2002 - AGL would be placed in 
the same position as its competitors in the growing energy markets, and 
registered under the Corporations Law with its share ownership restrictions 
lifted, making it no longer takeover proof. 
However, until the changes are made, legislation would strengthen the five 
per cent shareholding cap to ensure noone is able to profit unfairly from 
trading AGL shares, with hefty fines. 
Analysts were now looking out for separate plans by AGL to spin-off its 
network assets, with speculation an announcement may be forthcoming as early 
as next week. 
Meanwhile, analysts said today they didn't expect any further dramatic 
further rises in AGL's share price, as the lifting of the cap was still some 
time off, and had been widely anticipated. 
Hudson Securities client adviser Graham Harcourt said after the initial surge 
he was not expecting any "massively major change". 
"The final target date is no later than July 1, 2002, that is still 15 months 
away," Mr Harcourt said. 
ASIA PULSE t 03-04 1849

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. 


SMARTMONEY.COM: Is It Time To Sell Energy?
By Jersey Gilbert

04/02/2001
Dow Jones News Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

NEW YORK -(Dow Jones)- After a great two-year run for the energy stocks, a 
lot of investors are wondering what to do about the sector. Prices for 
companies like Noble Drilling (NE), Baker Hughes (BHI) and Anadarko Petroleum 
(APC) haven't advanced much in the last month or so, and judging from my 
e-mail, a lot of you are wondering if it's already too late to buy in. 
The answer: both yes and no.
As with so many investing questions, it all depends on your time frame and 
investing strategy. A price- or earnings-momentum investor could make a very 
good case that the energy sector is due for a short-term correction and it's 
time to sell out of highfliers like Weatherford International (WFT) and Enron 
(ENE). A long-term value investor, on the other hand, might continue to see a 
buying opportunity in stocks like Transocean Sedco Forex (RIG) and Apache 
(APA) based on both historically low price multiples and the possibility of 
consolidation. 
To understand why both views have merit, you need to look back four years to 
1997. 
Back then, analysts were talking about coming shortages of oil and gas. 
Energy stocks - from drillers like Global Marine (GLM) to boat lessors like 
Tidewater (TDW) - were moving for the first time in a decade. Unfortunately, 
the party came to an abrupt halt when a global currency crisis triggered 
recession in Asia. That, in turn, slowed world-wide demand for energy, 
knocking the wind out of most oil and gas stocks. 
By 1998, oil prices were down to $11 a barrel (or less, depending on which 
quote you follow), and there didn't seem to be much anyone could do. Several 
oil-producing countries - including Russia and Indonesia - needed to pump as 
much from their reserves as possible in order to earn foreign-exchange 
credit. So as demand stagnated, supply increased. 
Of course, that situation didn't last long. Once the Asian recession was 
over, demand quickly rebounded. With most of the excess OPEC production 
flowing to non-Japan Asia, consumption quickly climbed back to 77 million 
barrels a day and eventually pushed to the current level of around 79 million 
barrels a day. The currency crisis under control, OPEC was able to establish 
some discipline and keep production levels in line with global demand. 
Finally, after some delay, the analysts' warnings of energy shortages - 
especially in natural gas - proved correct. 
The question now is whether history will repeat itself. 
Once again - and quite suddenly - we are facing a threat of global recession, 
and the effect on Asian economic growth could be similar. The culprit this 
time around is not currency imbalance, but declining U.S. capital 
expenditures. And there's an additional element of instability: The high 
prices that energy producers currently enjoy help contribute to economic 
slowdown. Carbon-fuel commodity prices might end up as victims of their own 
success. 
SmartMoney readers know I've been talking about energy stocks for most of the 
year. Most recently, we recommended Anadarko, Devon Energy (DVN), Nabors 
Industries (NBR) and Patterson Energy (PTEN) in the January issue of the 
magazine, and I suggested the sector as a growth candidate in this column in 
early March. At the same time you have to be a realist. These stocks depend 
primarily on commodity price trends, and even in good times oil prices are 
volatile. 
With all that's out there to spook investors, we will almost certainly have a 
correction in the coming months. But I also believe it will be short lived. 
Over the longer term, factors propping up global demand will remain in place, 
and that should keep upward pressure on stock prices. In any event, I doubt 
investors will abandon the sector wholesale the way they did in 1997 when 
there was no recent precedent for sticking with it. 
To check this thesis, I talked with two natural-resource fund managers who 
still have painful memories of the '97 crisis. They both took over their 
current funds early in 1997, just in time to feel the full impact of the 
downturn on their performance. 
Charles Ober manages T. Rowe Price New Era. He took over the fund from the 
legendary George Roche, who'd directed it since 1969. New Era seldom tops the 
charts among natural-resource funds, since it has a true diversified 
natural-resource objective. The fund always has positions in basic materials, 
mining stocks and a controversial stake in Wal-Mart (WMT). The broad 
objectives mean the fund lags behind the pure energy-sector funds in the 
performance listings when energy is hot, but well-managed diversification 
gives it the lowest standard deviation among its peers over the last 10 
years, according to Morningstar. 
Ober admits that the price levels of energy stocks have as much to do with 
psychology as pure fundamentals. Demand for oil doesn't have to actually 
fall. The threat of reduced demand is sufficient for investors to get nervous 
and dump the stocks. 
But the fundamentals themselves are more favorable, in his view, than they 
were four years ago. Ober admits that a global recession would test the 
resolve of OPEC members much more than the recent economic boom (after all, 
it's easier to be disciplined when both your gross domestic product and 
oil-export revenues are rising). But he doesn't expect the kind of chaos that 
ensued in '97. "OPEC is more proactive in adjusting supply with production 
cuts," he says. "I don't think things will be as bad this time." 
John Segner of Invesco Energy takes a similar view. "OPEC remembers 1997 and 
is watching inventories much more closely," he insists. Segner took over the 
fund in February 1997, but that hasn't prevented him from posting the second 
best five-year performance record among his peers. (Morningstar doesn't break 
out a four-year period.) 
Segner also makes the point that, going into this economic slowdown, 
inventories above ground (refined and crude products already pumped out of 
the wells) are still at very low levels. "Even if OPEC could produce more, we 
probably couldn't transport it here," he says, citing limited shipping and 
refining capacity. There hasn't been a major new refinery built in the U.S. 
since 1984. 
Both managers agree that natural gas is a different (and more cheerful) 
story. Asian economics have little impact on supply-and-demand factors in 
North American natural-gas markets. Other than liquified natural gas, which 
is expensive, you can't move gas reserves easily from continent to continent. 
Moving into the summer season, air-conditioning usage means so-called peaking 
units for electricity generation will be working full blast. Increasingly, 
they are fired by natural gas, so demand should remain strong. 
The problem with natural gas is that there aren't very many pure plays among 
the service companies or the exploration and production companies. These are 
normally the energy subsectors with the most leverage to commodity prices. 
Almost all the midcap and large-cap names like Ocean Energy (OEI) and 
Occidental Petroleum (OXY) have diversified their portfolios between gas and 
oil to try to get a little more long-run stability in their revenue. As a 
result, you'd expect a global recession to spell trouble for most of these 
stocks. 
So what should you do? Again, it depends on your time frame. If you're a 
long-term investor, there's no compelling reason to sell and take the tax 
hit. As for making new investments, consider this: The seasonal window for 
commodity and stock prices usually ends with spring. As warm weather 
increases both automobile travel and electrical generation, prices are likely 
to rise. Usage may ease again in the fall, but that's when the heating 
industry starts to stock up inventory for winter, propping up the market 
until December. So unless a global recession interrupts things, demand should 
keep upward pressure on prices through the end of the year. 
Only if you're trying to time the market would selling make sense. It's 
reasonable to assume that earnings growth in the second and third quarter of 
2001 won't be anything like the growth rates of the fourth quarter of 2000. 
That's usually a good indication for a momentum investor to lock in gains. If 
you bail, just be prepared to jump back in quickly. If the global recession 
scenario doesn't play out and OPEC manages inventories successfully, the 
threat of a cold winter could have energy prices peaking again by the end of 
the year. 
For my money, however, that sort of approach is too complicated. Over the 
long term, the world's thirst for energy just doesn't figure to go away. And 
that should spell good things for this group, short-term correction or no. 
For more information and analysis of companies and mutual funds, visit 
SmartMoney.com at http://www.smartmoney.com/
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