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University of HoustonUniversity of HoustonBauer College -- GEMIBauer College -- GEMI
Energy Advancement Leadership Conference
CONVENTIONAL ENERGY
UNDER STRESS
Energy Advancement Leadership Conference
CONVENTIONAL ENERGY
UNDER STRESSArthur L. Smith, CFAJohn S. Herold, Inc. Chairman & CEO November 17, 2004
Arthur L. Smith, CFAJohn S. Herold, Inc. Chairman & CEO November 17, 2004
The end of the Oil Age?
October 25-31, 2003 edition
Let’s Place Today in Perspective
• Very Difficult 1998-99• Exceptionally Strong
Wellhead Prices for Oil & Natural Gas
• Phobia of another Price Meltdown (2001)
• Profound Cynicism among Energy Investors
• No visible reaction (demand downturn) to sharp (100%+) run up in all basic energy sources – oil, gas, coal, nuclear, et al.
Oil Price Crash of 1986
$10 Barrel
Why Energy Investors are Skeptical and Cynical
The Sector is Insignificant (7% up from 4.9%)
The record is Ugly -- Growth for Growth’s Sake Doesn’t Work
The duration of fundamental energy cycles have been increasingly brief
It’s hard to measure performance – RD/SC
Oil and Natural Gas prices are volatile and the accounting practices are always “ looking in the rear view mirror”
S&P 500 Historical Composition1982
Financials6% Health Care
18%Consumer
Staples11%
Consumer Discretionary
6%
Industrials7%
Materials6%
Energy25%Utilities
11%Technology9%
Transport1%
2000
Financials17%
Health Care14%
Consumer Staples8%
Consumer Discretionary
10%
Industrials11%
Materials2%
5%
Utilities4%
Telecommunications Services
5%
Information Technology
22%
2004
Information Technology
17%
Telecommunications Services
3%
Utilities3%
Energy7%
Materials3%
Industrials11%
Consumer Discretionary
11%
Consumer Staples
11%
Health Care14%
Financials21%
Life Cycle of U.S. Oil Production
World Oil ProductionColin Campbell
2004
NYMEX Crude Futures Price Expectations
$20
$22
$24
$26
$28
$30
$32
$34
$36
$38
$40
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
2002
NYMEX Crude Futures Price Expectations
$20
$22
$24
$26
$28
$30
$32
$34
$36
$38
$40
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
2003
2002
NYMEX Crude Futures Price Expectations
$20
$22
$24
$26
$28
$30
$32
$34
$36
$38
$40
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
2003
2002
2004
NYMEX Crude Futures Price Expectations
$20
$25
$30
$35
$40
$45
$50
$55
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
2003
2002
2004
2005
NYMEX Gas Future Strip Price Expectations
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
$7.00
$7.50
$8.00
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
2002
$6 MMBTU
NYMEX Gas Future Strip Price Expectations
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
$7.00
$7.50
$8.00
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
2002
2003
$6 MM BTU
NYMEX Gas Future Strip Price Expectations
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
$7.00
$7.50
$8.00
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
2002
2003
2004
$6 MM BTU
NYMEX Gas Future Strip Price Expectations
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
$7.00
$7.50
$8.00
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
2002
2003
2004
$6 MM BTU2005
Cumulative Gas Storage WithdrawalsCUMULATIVE GAS STORAGE WITHDRAWALS
0200400600800
1,0001,2001,4001,6001,8002,0002,2002,4002,600
0 2 4 6 8 10 12 14 16 18 20
Week Number
Bc
f
5 Yr Avg. 2003-04 2002-03
0 5025
Miles
Mature Production Area Deep Shelf Focus Area
Deep Water Exploration
Gulf of MexicoE & P in a Mature Basin
Peaked?•By virtually all measures, the domestic oil industry activity levels peaked in 1981– Operators, Seismic Crews, Rigs (4000), Exploratory Wells, Employment
•But Oil Production Peaked in 1970 (9.8 MMb/d)
• & Natural Gas Output peaked in 1973 (22.6 TCF)
•Domestic Oil and Natural Gas Consumption has yet to peak (2004 will top 2003)
•Oil Imports set new records daily – Gas Imports from Canada peaked in 2002
OXYMORONSJSH Favorites
Exxon Mobil
1. Humble Oil & Refining 2. Standard Oil (NJ) 3. Socony Vacuum 4. Superior Oil 5. Anglo-Iranian Oil 6. Standard Oil (Ohio) 7. Pan American Standard Oil (Indiana) 8. Dome Petroleum 9. Atlantic Refining 10. Richfield 11. Sinclair 12. Supron Energy 13. Union Sulfur & Oil 14. Anderson Pritchard 15. Royal/Dutch Shell 16. Shell Union (Shell Oil) 17. The Texas Company 18. Tidewater 19. Pacific Western-Getty 20. Skelly 21. Gulf 22. Standard Oil (CA) 23. Standard Oil (KY) 24. Cities Service 25. Occidental 26. Phillips 27. Aminoil 28. General American Oil 29. Continental Oil 30. Union Oil 31. Pure Oil 32. Sun Oil 33. Sunray-Sunray DX 34. Midcontinent 35. Texas Pacific 36. Kerr McGee 37. Plymouth Oil 38. Ohio Oil 39. Texas Oil & Gas 40. Amerada Petroleum 41. Hess Oil and Chemical 42. Total Petroleum 43. PetroFina 44. Fina Inc. 45. Elf Aquitaine
1950 1960 1970 1980 1990 2000
ExxonMobil
Amoco
Atlantic Richfield
Allied Chemical/Signal Union Texas (IPO)
BP
RD/SC
Getty Texaco
Chevron
Occidental
Phillips
ChevronTexaco
ConocoPhillipss
Unocal
Amerada Hess
USX
TotalFinaElf
Marathon
Sun Oil
Conoco
Kerr- McGee
Oryx
Sunoco
(Marathon)
PZL
British Petroleum
(Conoco)
BP Amoco
Dupont
Copyright © 2002 John S. Herold, Inc.
$0
$20
$40
$60
$80
$100
$120
$140
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
O&
G R
eser
ve $
Vo
lum
e (U
S$B
)
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
Imp
lied R
eserve Valu
e (US
$/bo
e)
O&G $ Volume (US $B) Implied Reserve Value (US$/boe)
Worldwide O&G $ Volume (US$B) vs.
Implied Reserve Value (US$/boe)
XOM
BP/ARCO
CVX
BP/Amoco
COP
$9.53
$5.88$5.98
$6.44
$9.64
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
Q1 '00 Q2 '00 Q3 '00 Q4 '00 Q1 '01 Q2 '01 Q3 '01 Q4 '01 Q1 '02 Q2 '02 Q3 '02 Q4 '04 Q1 '03 Q2 '03 Q3 '03 Q4 '03 Q1 '04 Q2 '04 Q3 '04
Average U.S. Implied Reserve Value (US$/boe)
2000 2001 2002 2003 2004
Copyright © 2004 John S. Herold, Inc.
Alminex Ltd.Amarex, Inc.Amerada HessApco OilAsamera, Inc.Austral OilAztec Oil & GasBanff Oil, Ltd.Belco PetroleumBP Oil & GasBritish Col. Oil & GasButte Oil & Gas Canadian Exports Oil/GasCanadian GridoilCanadian HomesteadCanadian Ind. Gas & OilCanadian SuperiorCentral-Del RioCleary PetroleumClinton OilConsolidated Oil & GasConsolidated ProductionContinental Oil Co.CreoleCrestomont Oil & GasCrystal Oil & LandDome PetroleumEason OilEmpire State Oil Co.
Equity Oil & GasExchange Oil & GasFalcon SeaboardFelmont OilForest OilGeneral American OilGeneral Crude OilGreat Basins PetroleumGreat Plains DevelopmentGulf Oil CanadaHamilton Bros. PetroleumHelmerich & PayneHome OilHudson's Bay Oil & GasHusky Oil, Ltd.Imperial OilInexco OilKathol PetroleumKewaneeKirby PetroleumLouisiana Land & Exp.LVO Corp.Mesa PetroleumMidwest OilMission Corp.Noble AffiliatesOcean Drilling & Exp.Pacific PetroleumPan Ocean Oil Company
Pauley PetroleumPennzoil UnitedPetrofina CanadaPubcoRanger OilReading & BatesReserve Oil & GasSabine RoyaltyScurry-RainbowShenandoah OilSignal CompaniesSinclair VenezuelanSkellySouthern Natural GasSouthland RoyaltySouthwest Gas Producing Co.Superior OilTexas American OilTexas Int’l PetroleumTexas Oil & GasTexas Pacific Oil Co.Tipperary Land & Exp.TransOcean OilUnited Canso Oil & GasWebb ResourcesWestates PetroleumWestcoast Production Co.Western DecaltaWilshire Oil of Texas
86 INDEPENDENT E&P COMPANIES86 INDEPENDENT E&P COMPANIES
JSH Coverage--January 1970
JSH Coverage--January 1980
INDEPENDENT E&P COMPANIES-- 45 SurvivorsINDEPENDENT E&P COMPANIES-- 45 SurvivorsEquity Oil & Gas Pauley Petroleum
Amarex, Inc. Pennzoil UnitedAmerada Hess Petrofina Canada
Felmont OilAsamera, Inc. Forest Oil Ranger Oil
General American Oil Reading & Bates
Great Basins Petroleum Sabine Corp.Belco Petroleum Scurry-Rainbow
Gulf Oil CanadaHamilton Bros. Petroleum
Butte Oil & Gas Helmerich & PayneHome OilHudson's Bay Oil & Gas Southern Natural Resources
Canadian Homestead Husky Oil, Ltd. Southland RoyaltyImperial OilInexco Oil
Texas American OilTexas International Petroleum
Kirby Petroleum Texas Oil & GasConsolidated Oil & Gas
Louisiana Land & Exp. Tipperary Land & ExplorationMesa Petroleum TransOcean Oil
United Canso Oil & GasWebb Resources
Crystal Oil & Land Noble AffiliatesDome Petroleum Ocean Drilling & Exp. Westcoast Production Co.
Wilshire Oil of TexasEnergy Reserve Group
Conoco, Inc.
JSH Coverage 1990 & 2004INDEPENDENT E&P COMPANIES
Nov 2004 – 4 Nov 2004 – 4 SurvivorsSurvivors
Jan 1990 - 14 Survivors
Pennzoil
Amerada Hess
Forest Oil Ranger Oil
Reading & Bates
Imperial Oil
Louisiana Land
Mesa Inc.
Noble EnergyWilshire Oil of Texas
SONAT
Home OilHome Oil
Amerada Hess
Equity Oil & Gas
Forest Oil
Helmerich & Payne
Imperial Oil
Noble AffiliatesEquity Oil & Gas
Monthly U.S. Consumptionand Production of Natural Gas
Source: Energy Information Administration
1000
1200
1400
1600
1800
2000
2200
2400
2600
2800
1984
Jan Ju
l19
85 J
an Jul
1986
Jan Ju
l19
87 J
an Jul
1988
Jan Ju
l19
89 J
an Jul
1990
Jan Ju
l19
91 J
an Jul
1992
Jan Ju
l19
93 J
an Jul
1994
Jan Ju
l 19
95 J
an Jul
1996
Jan Ju
l 19
97 J
an Jul
1998
Jan
Ju
l 19
99 J
an
July
2000
Jan
July
2001
Jan
July
2002
Jan
July
2003
Jan
July
2004
Jan
July
Bcf
Dry Gas Production
Consumption
0
200
400
600
800
1000
1200
1400
1600
Ch
evro
n
Am
oco
Tex
aco
Exx
on
Mob
il
R/D
Sh
ell
Atl
anti
c R
ich
fiel
d
Un
ocal
Ph
illip
s P
etro
leu
m
Bu
rlin
gton
Con
oco
Occ
iden
tal
US
X-M
arat
hon
Am
erad
a H
ess
Ory
x E
ner
gy
Un
ion
Pac
ific
Res
En
ron
Pen
nzo
il
An
adar
ko
Con
sol.
Nat
. Gas
Copyright © 2003 John S. Herold, Inc.
U.S. Natural Gas Production20 largest producers (1992)
Average – 380 Bcf
Companies that have been acquired by 2002
Enron became EOG Resources
0
200
400
600
800
1000
1200
1400
1600
BP
plc
Exx
on M
obil
Ch
evro
nT
exac
o
Roy
al D
utc
h/S
hel
l Gro
up
An
adar
ko
Pet
role
um
Con
ocoP
hill
ips
Dev
on E
ner
gy
El P
aso
Bu
rlin
gton
Res
ourc
es
Dom
inio
n R
esou
rces
Un
ocal
Con
sol.
Nat
ura
l Gas
Mar
ath
on O
il
Ker
r-M
cGee
EO
G R
esou
rces
Will
iam
s C
omp
anie
s
Occ
iden
tal P
etro
leu
m
XT
O E
ner
gy
Ap
ach
e
Ch
esap
eak
e E
ner
gy
Copyright © 2003 John S. Herold, Inc.
U.S. Natural Gas Production20 largest producers (2002)
Average – 440 Bcf
Nat Gas Imports from Canada
Bcf
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
197
3
197
4
197
5
197
6
197
7
197
8
197
9
198
1
198
2
198
3
198
4
198
5
198
6
198
7
198
8
198
9
1990
199
1
199
2
199
3
199
4
199
5
199
6
199
7
199
8
199
9
2000
200
1
1980
Canadian Nat Gas Imports
Run out of Steam
Bcf
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
197
3
197
4
197
5
197
6
197
7
197
8
197
9
198
1
198
2
198
3
198
4
198
5
198
6
198
7
198
8
198
9
1990
199
1
199
2
199
3
199
4
199
5
199
6
199
7
199
8
199
9
2000
200
1
1980
2004
Large Canadian E&P companies1995 vs. 2004
• AEC• Anderson• Canadian
Natural• Conwest• Crestar• Gulf Canada• Home Oil• Husky• Nexen
• Norcen
• Pan Canadian
• Poco
• Ranger
• Renaissance
• Talisman
• Tarragon
• Wascana
•Canadian Natural
•Husky
•Nexen
•EnCana
•Talisman
Small & Mid-Cap Canadian E&Ps 1995 vs. 2004
• Amber• Archer• Barrington• Baytex• Beau Canada• Berkley• Blue Range• Bonavista• Cabre• Canadian 88• Cimarron• Chauvco• CS Resources• Dorset• ELAN• Elk Point• Encal• Genesis• Maxx• Morgan• Morrison• Newport
• Northrock• Northstar• Numac• Pacalta• PanEast• Paramount• Penn West• Petromet• Pinnacle• Remington• Rigel• Rio Alto• Sceptre• Stampeder• Summit• Tri-Link• Ulster• Vermilion
•Baytex Energy Trust
•Bonavista Energy Trust
•Enerplus Resources
•Espirit Exploration
•Freehold Royalty Trust
•NAL O&G Trust
•Paramount Energy Trust
•Pengrowth Energy Trust
•Petrofund Energy Trust
•Penn West Energy Trust
•Progress Energy
•Ultima Energy Trust
•Vermilion Energy Trust
World Crude Oil Production
Source: Degoyler & Macnaughton
South America
Europe (including F.S.U.)
Far East
Africa
Middle East
North America
Million Barrels per day7065
55
60
504540353025201510 5
01945 1950 1955 1960 19951970 1975 1980 1985 19901965
Imports of LNG
0
50
100
150
200
250
300
350
400
450
500
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Imports of LNG 2004
0
50
100
150
200
250
300
350
400
450
500
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
What a Year for Energy – 2003!
• Natural Gas $4.41 Mcf
+71%
Oil Prices Up $4/Bbl to $27
World Production of JSH Oils climbed 5% to 11.3 Billion BOEs
John S. Herold, Inc.
Is The Best!
2004 Implied Values by Region
Copyright © 2004 John S. Herold, Inc.
$1.50
$4.81
$6.98
$9.25$7.12
$9.66
$14.92
$16.56
$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
Canada GOMOffshore
Gulf CoastOnshore
Mid-Continent
RockyMountains
Appalachia North Sea OtherWorldwide
US$/boe
2001-2003 Spending Changes Within Regions
(18%)
20%
63% 62%
13%
(30%)
4%
(40%)
(20%)
0%
20%
40%
60%
80%
Worldwide United States Canada Europe Africa & MiddleEast
Asia-Pacific South & CentralAmerica
Capital Flowing out of Mature Regions
Capital flowing to areas with higher returns
United States
Canada
South & Central America
Africa & Middle East
Asia-Pacific
Europe
U.S. Canada
So./Central America Africa/Middle East
Asia-
Europe
0% 50% 100% 150% 200% 250% 300%
Reserve Replacement %
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
$9.00
Rese
rve R
epla
cem
ent
Cost
, $/b
oe
3-Year Average RRC, 3-Yr Replacement
Bubble Size = Total Costs Incurred Bubble with no Fill = 2001 values Bubble with Fill = 2002 values
SuperMajors Shun U.S. UpstreamPlowback 40-50% of 2003E CashFlow
$6,500
$5,500
$4,500 $4,500
$3,950
$2,218$1,700 $1,600
61.0
%
40.0
%
38.0
%
36.0
%
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
BP ExxonMobil ChevronTexaco Shell
$ M
illi
on
s
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
E&P CashFlow Capital & Exploratory Expenditure % Reinvested
Source: John S. Herold, Inc. data and analysis
Sustainable Growth?
0
500
1000
1500
2000
2500
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Gas Reserves/Well for Super-Integrateds*Gas Reserves/Well for All Integrateds*Gas Reserves/Well for All Sampled Companies
Private Equity Capital is Plentiful
• Natural Gas Partners• EnCap Investments• Yorktown Partners• First Reserve Group• Spectrum• Quantum• Lyme Rock Partners
• Riverstone Holdings• Harvard• Yale Investments• Warburg Pincus• JP Morgan Partners• GE Structured Finance• Lehman Brothers
Independent E & P IPOs1992-2003
0
2
4
6
8
10
12
14
16
18
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
BurlingtonResources
Chesapeake
Clayton Williams
Cross Timbers
General Atlantic
Louis Dreyfus
Newfield Expl.
Patterson Energy
Stone Energy
Torch Energy
United Meridian
Williams
Basin Expl.
Cross Timbers RT
HS Resource
St. MaryLand
Dominion Resources/ Blk.Warrior
Flores & Rucks
Hugoton
Tatham Offshore
Transtexas Gas
Vastar
CEC Resources
DLB Oil & Gas
Forcenergy
Belco Oil & Gas
Cavell Energy
Compton Petr.
Costilla Energy
Energy Africa
Houston Expl.
Monterey Res.
Offshore Energy
Petroleum Securities Australia
Rutherford-Moran
Tap Oil NL
Titan Exploration
ATP
Black Rock Oil
CNOOC
Eastern Star Gas
Encore
Acqus
Essential Petroleum
GMX Resources
Heritage Resources
Anglo Siberian
Eurosov Energy
Miller Exp.
Desire Petroleum
Beta Oil & Gas
Hugoton RT
Energy Partners
Westport Resources
DevX
Western Oil Sands
China Petroleum &
Chemical
Arrow Energy
PetroChina
Energy Partners
Westport Resources
DevX
Western Oil Sands
China Petroleum & Chemical
Arrow Energy
PetroChina
Petrobras
Apexindo Pratama
Bounty O&G
Cooper Energy
Regal Petroleum
Sunshine Gas
Faroe
Petroleum
Quit Complaining – Gas is Cheap!
Consumer Cost of Gasoline per Mile Traveled
0
2
4
6
8
10
12
14
16
1936
1945
1955
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
"200
2" C
ost
in C
ents
per
Mile
Source : EIA, EPA and JSH Analysis
Avg. Cost / Mile: 1936-2002
= $0.09 centsApril 2004 = $0.08 cents
How about 85.9 cents per gallon?
Relative Prices per 42-Gallon Barrel
Evian® Water
$28.03 $54.14 $189.90 $1,105.44
G asolineC rude O il E vian® W ater B en & Jerry’s“C hunky
M onkey”®
R elative Prices per 42-G allon B arrel
$28.03 $54.14 $189.90 $1,105.44
G asolineC rude O il Evian® W ater Ben & Jerry’s“C hunky
M onkey”®
Relative Prices per 42-G allon Barrel
Ben & Jerry’s“Chunky Monkey”®
$28.03 $54.14 $189.90 $1,105 .44
G asolineC rude O il E vian® W ater B en & Jerry’s“C hunky
M onkey”®
R elative P rices per 42-G allon B arrel
Crude Oil
$41.38 $28.03 $54.14 $189.90 $1,105.44
G asolineC rude O il E vian® W ater B en & Jerry’s“C hunky
M onkey”®
R elative Prices per 42-G allon B arrel
Gasoline
$79.80
$ 7 8 .7 3 $ 1 5 0 .3 6 $ 2 ,6 6 1 .1 2 $ 6 1 5 ,2 4 0 .9 5
M i l kC o c a C o l a ® T a b a s c o S a u c e ® F l o n a s e ®
Coca Cola® Milk
$ 7 8 .7 3 $ 1 5 0 .3 6 $ 2 ,6 6 1 .1 2 $ 6 1 5 ,2 4 0 .9 5
M i l kC o c a C o l a ® T a b a s c o S a u c e ® F l o n a s e ®
Tabasco Sauce®
$ 7 8 .7 3 $ 1 5 0 .3 6 $ 2 ,6 6 1 .1 2 $ 6 1 5 ,2 4 0 .9 5
M i l kC o c a C o l a ® T a b a s c o S a u c e ® F l o n a s e ®
Flonase®
$ 7 8 .7 3 $ 1 5 0 .3 6 $ 2 ,6 6 1 .1 2 $ 6 1 5 ,2 4 0 .9 5
M i l kC o c a C o l a ® T a b a s c o S a u c e ® F l o n a s e ®
•Relative Prices per 42-Gallon Barrel*
Recommendation:It’s a Marathon & not a Sprint
“Great success is possible, even in a hostile environment, even in a mature industry”
Willam K. Hall
“Failure is never fatal, and success is never final.” Joe B. Foster, Newfield Exploration
Anderson Exploration Stock Price vs. JSH ANW
0
10
20
30
40
Sep
-91
Sep
-92
Sep
-93
Sep
-94
Sep
-95
Sep
-96
Sep
-97
Sep
-98
Sep
-99
Sep
-00
Sep
-01
C$/
Sh
are
Top Winning Strategiesof Successful E&P Companies
• Focus Wins!
• Measure and Model
• Treasure Innovation
• Nurture Risk Taking
• Understand where we are on the Macro Energy Cycle
• Acquire/Divest like Warren Buffet
• Stick with a Good Strategy
• Don’t Confuse Brains with a Bull Market
• Balance Development and Exploration
• Use Leverage Judiciously
Barrett Resources Corp. Stock Price vs. JSH ANW
0
10
20
30
40
50
60
70
80S
ep
-92
Sep
-93
Sep
-94
Sep
-95
Sep
-96
Sep
-97
Sep
-98
Sep
-99
Sep
-00
Sep
-01
$/S
hare
Royal Dutch/Shell Experience
Copyright © 2004 John S. Herold
Relative Performance
90%
110%
130%
150%8/4
/2003
9/1
5/2
003
10/2
7/2
003
12/8
/2003
1/1
9/2
004
3/1
/2004
4/1
2/2
004
5/2
4/2
004
7/5
/2004
8/1
6/2
004
9/2
7/2
004
11/8
/2004
BP RD XOM
Reserve Announcement
01/08/04
March was horrible for
performanceBy 03/01/04 had made
almost all back
Price per BOE(6:1) (50/50)
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
$40.00
Ja
n-9
7
Ja
n-9
8
Ja
n-9
9
Ja
n-0
0
Ja
n-0
1
Ja
n-0
2
Ja
n-0
3
Ja
n-0
4
Month
% C
han
ge
Oil annual avg. Gas annual avg. BOE annual avg. BOE 7-yr. Avg.
The 7-yr. avg. per BOE was $22.16 on a 50/50 split
Prices for ’01-’03 averaged $25.12 – up 56% from ’97-’99 average of $16.06
Strip @ 7/1/04
$37.76
1997 1998 1999 2000 2001 2002 2003
$22