January 17, 2005 ; Kurt Wulff on Nightly Business Report with Paul Kangas


KANGAS: Joining me now to take a closer look at the energy sector is Kurt Wulff of McDep Associates. That`s his own energy research firm and welcome back to NIGHTLY BUSINESS REPORT Kurt. Good to see you.

KURT WULFF, ENERGY ANALYST, MCDEP ASSOCIATES: Thank you, Paul. It`s good to be here.

KANGAS: Well, "Barron`s" financial magazine calls you the energy analyst that oil barons consult when they want to make money in the sectors. That`s a real compliment.

WULFF: Thank you.

KANGAS: Tell me, that`s an interesting name, McDep Associates. I know the MC stands for market capitalization. What`s the rest of it stand for?

WULFF: McDep is my analytical ratio. It stands for market cap and debt, the de for debt. That`s the numerator of the ratio. The denominator is P, present value. In the old days, we always looked at oil and gas stocks in terms of their value of resources and we typically looked at stock price to net asset value. But then during the early `80s, when there were some big deals for debt, I felt we had to recognize the debt factor as well. So I came up with this combination of market cap and debt to present value.

KANGAS: Kurt, you focus on five areas when it comes to the energy sector. First the mega caps. Name a couple of your favorites in that area.

WULFF: Paul, I have what I call a B1, my top buy rating on Chevron Texaco and Royal Dutch. Chevron Texaco because it`s a little cheaper, has a lower McDep ratio than the others.  While Royal Dutch is priced in line with the others, this is an historic time for that company, because they’re collapsing the two company structure into a single company with a single chief executive and a single board of directors.

KANGAS: You also cover the producer refiners and which are your favorites there?

WULFF: I have my B1, the top buy rating on Conoco Philips and a B2 which means good stock but don`t own as much because of political risk on Petro China and Lukoil, the Russian and Chinese company. And also a full buy rating on Norsk Hydro, a nice compromise, in that it`s a non U.S. company, where there might be more potential, but it doesn`t have as much political risk as Russia and China.

KANGAS: How about the large cap independents? What do you like there?

WULFF: Here`s where you can make more money if you`re a big investor, big institution. These are big stocks.  My B1 ratings are on Burlington Resources, Anadarko and Encana, a Canadian company. And I also have a B2, meaning hedge risk a little bit on CNOOC, a Chinese independent.

KANGAS: You think those stocks are potential takeover candidates?


KANGAS: OK simple enough. How about the small cap independents?

WULFF: Well, I have Encore Acquisition Company, one of my favorites run by a very successful manager over the years.   Berry Petroleum which is actually my best stock last year, so you`ll have to be a little cautious about whether they can continue to do as well. And Cimarex Energy.

KANGAS: OK and then what about the oil income trusts?

WULFF: My recommendation there is Canadian Oil Sands Trust. I have a hold recommendation on San Juan Basin Royalty Trust, one of my long time favorites and its stock price is a little more attractive again here. Canadian Oil Sands is all oil. San Juan Basin is all gas. Canadian Oil Stands pays about 3 or 4 percent now, but their dividend could double, triple, quadruple over the next two years. San Juan pays about 8 or 9 percent right now.

KANGAS: Yeah, that`s the advantage of these oil income trusts, good yield.

WULFF: You can`t find yields like that in reliable securities in very many places.

KANGAS: Kurt, do you own any of the issues or have any banking relationship with the companies you mentioned?

WULFF: I certainly don`t have a banking relationship. That`s a requirement of my business, but I do own all the stocks.

KANGAS: You own them, so you believe in them obviously.

WULFF: I eat my own cooking as they say.

KANGAS: There you go. Kurt, I want to thank you very much for joining us today.

WULFF: Thank you for having me Paul.

KANGAS: My guest, Kurt Wulff of McDep Associates.