Although US crude is trading near $100 a barrel, 2007 was very volatile.

It’s been a phenomenal time to invest in oil, but analysts say the huge gains of the last year are most likely a thing of the past.
2007 was truly a banner year for the industry. The big integrated oil companies --ones that produce and refine crude--saw stock gains in the 30 percent range, Cnn.money.com reported.
Crude itself rose nearly 60 percent. The biggest winners were the oil production companies, some of which saw their stock prices double. Overall, the AMEX (American Stock Exchange) oil and gas index rose about 30 percent in ’07, trouncing the near-stagnant S&P 500. (The S&P 500 is an index containing the stocks of 500 Large-Cap corporations, most of which are American.)
But most analysts say 2008 is unlikely to mimic the staggering returns of the last year. And on the heels of such a runup, some say the sector is simply overvalued.
Oil companies’ stocks tend to rise and fall with the price of crude, so any prediction on stock prices needs to start with a look at the underlying commodity.
Although US crude is trading near $100 a barrel, 2007 was a very volatile year. Prices began the year by dipping below $50 in January, spiking above $75 in July, then pulling back to the high $60s by the end of August before embarking on its recent record run. For the year, the average price for crude was around $72.
Most analysts have bumped up their estimate for 2008 to around $80 to $85 a barrel from the low $70s, reflecting a view that oil prices will rise but not by another 60 percent, like they did in 2007.
“I don’t think too many people are talking about $150 oil, unless they’re also stocking up on canned goods and ammunition,“ said Jeff Tjornehoj, a research analyst at the data and research firm Lipper.
John Kilduff, an energy analyst at MF Global in New York (a leading broker of exchange-listed futures and options in the world), said he expects crude prices to top $100 a barrel in the first quarter--perhaps peaking around $110-- then pull back to maybe $70 as the economy slows and speculative money retreats.
Still, he says investors are still pricing oil company stock as if oil costs $50 a barrel and sees room for those stocks to go up.
Companies that produce oil--as opposed to refining it--have been the stars of the sector in 2007. Frontier (FTO, Fortune 500) stock is up 45 percent, Occidental (OXY, Fortune 500) is up 60 percent, and Hess (HES, Fortune 500) has surged a staggering 105 percent.
But the stock of those companies is most directly tied to the price of crude, and with crude unlikely to post another 60 percent runup, its doubtful those stocks will see similar gains.
For the integrated companies--those that produce and refine oil--earnings growth for 2008 may be stronger than in 2007.
In the third quarter companies like Exxon Mobil (XOM, Fortune 500), BP (BP) and Chevron (CVX, Fortune 500) saw profits slip as oil prices rose much faster than gasoline prices and eroded the profit margin for refining.
When these companies report their 2007 earnings in January they will struggle to beat their 2006 results. As a result, stocks for the integrated companies lagged the producers, although they still posted healthy--30 percent--growth for the year.
But gasoline prices have rebounded, and Reuters estimates predict a 9 percent growth in energy company earnings in 2008. That’s lower than the 15.7 percent growth that it predicts for the S&P 500, but still a solid performance.
“It’s still a good place for investors to hide out an make money in 2008,“ said Kilduff.
But others think the sector is played out.
“Fundamentally, it’s expensive,“ said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. “A lot of investors are eager to get into energy, and it’s pushed the values to unattractive levels.“
Ablin said stocks of energy companies are expensive by a number of metrics. Their price-to-book value--the value of all their outstanding stock compared to book value of their underlying assets--is about 5 percent higher than the S&P average. Normally, energy companies have a price-to-book value about 15 percent lower, said Ablin.
He said he sees a similar pattern with other measures like price to cash flow and price to sales.
“For people holding [energy stocks], we recommend they continue holding them,“ said Ablin. “But we’d encourage buyers to wait on the sidelines until the values come back down to earth.“

The world has just eight years to go before it reverses its carbon consumption and CO2 emission. This has been agreed upon by 2,500 scientists writing for the Nobel-winning ’Intergovernmental Panel on Climate Change’, Rediff.com reported.
The main “culprit“ for CO2 emissions is coal-based energy which has 24 percent share in India’s emissions and 41 percent worldwide.
While coal accounts for 25 percent of energy, the role of renewables is 13 percent. Of these, wind, solar and bio masses contribute just 4.1 percent. A series of articles look at the prospects for the renewable energy in the country.
Suzlon Energy, the world’s leading wind turbine supplier, is installing 33 wind mills in Agali Panchayat in Palakkad district in Kerala, where a total of 19.8 MW energy would be generated. Each machine, priced at Rs 4 crore (Rs 40 million), is up on offer for buyers.
Bhima, a jewellery chain in Kerala, has already bought some of the machines and Popy, a leading brand of umbrella makers in the state, has lapped up the rest.
Each machine generates 400 kw of energy which the buyers can sell to the Kerala State Electricity Board, officials in the Board say.
Agali alone has the potential to generate 100 MW of wind energy, the board officials point out, indicating at the possibility of more wind mills there, apart from the 33 set up by Suzlon in agreement with the Board.
More and more states are facilitating setting up wind energy projects and 13-odd states have set targets of producing 10 per cent of their power from renewable energy.
The total potential for wind energy in the country is 45,000 MW of which just 10,500 MW are to be tapped by the end of the 11th Five-Year Plan.
About 3,000 MW of wind power capacity is to be added to the existing 7,659 MW over the next four years to take the total to 10,500 MW by 2012.
But the Ministry of Renewable Energy points out that the progress has been quick. From a mere 1,600 MW of wind generation capacity ten years ago, India has emerged as the country with the fourth largest wind-power capacity, after the US, Germany and Spain.
Within the country so far, Tamil Nadu has been responsible for producing the bulk of the energy, along with Maharashtra, Gujarat, Andhra Pradesh, Karnataka, Gujarat and Rajasthan.
Tamil Nadu with 3,000 MW installed capacity has proposed a target of 2,500 MW wind power capacity by 2012.
Private players like Suzlon, Enercon, the Baldota Group and Vestas RRB are at the forefront of bringing this wind of change that is sweeping the energy sector.
With banks ready to finance these projects, there seems to be nothing to deter more participation from the private sector. For instance, a company like TCP Ltd in Tamil Nadu has set up 12 wind power generators of 225 Kw each at Kayathar in Tirunelvel district.
It got Rs 2 crore (Rs 20 million) from the Industrial Development Bank of India and Rs 6.80 crore (Rs 68 million) from the Indian Renewable Energy Development Agency Ltd.
The company also set up seven wind plants of 500 Kw each at Palladam taluk in Coimbatore district at a cost of Rs 20 crore (Rs 200 million).
The capital expenditure on wind power--ranging from Rs 3.5-Rs 6 crore (Rs 35-60 million) per megawatt--is higher on average than the Rs 4 crore (Rs 40 million) per megawatt required for a conventional coal fired plant.
The per unit cost of wind power is also quite high--at around Rs 3-3.50 per unit --when compared with the power that will be supplied from the pithead coal-based Sasan ultra mega power plant for instance, at Rs 1.19 per unit.
The country’s wind power potential is estimated at 45,000 MW and the government has already identified 216 possible sites, having annual mean wind power density of 200 watt per square meter or more at 50-meter elevation, which are considered suitable for installation of wind power projects.

Minister of Energy and Natural Resources Hilmi GŸler has said the government’s new target after wind power is geothermal power and that the necessary preliminary work in this field was on track.
GŸler added they would follow a process similar to the one for wind power licenses, Todayszaman.com reported.
Speaking at the Turkish Industrialists and Businessmen’s Association’s “Supply Security in Energy: Policies and Proposals“ conference in Ankara, GŸler said the energy supply had become a wider and more comprehensive issue and that it was no longer dependent on the relationship between electricity and natural gas price hikes. GŸler emphasized that they have to see the big picture clearly in order to understand the new paradigms in the global energy order.
GŸler said Turkey had recognized its renewable energy potential very recently and had begun to initiate new projects to make use of it. He said Turkey will focus on geothermal power more next year and that Turkey was the first in Europe and seventh in the world in terms of geothermal potential. GŸler emphasized plans are in the works to prepare maps for Turkey’s geothermal resources as had previously been done for wind power and that the licensing process will be similar to that of wind power plants. He also said Turkey will increase its inventory of drilling equipment. “I held a meeting with 19 drilling equipment producers,“ he said, adding they were going to use geothermal power in greenhouses, thermal tourism and central heating.
GŸler also said coalfields had been invigorated after private businesses were allowed to operate in this area, adding that around 3,000 small and medium-sized enterprises (SMEs) would benefit from this field of business.
On oil and natural gas exploration, GŸler said exploration efforts had increased in recent years, so much so that enough drillers could not be found for ongoing projects.
Energy shapes foreign policy and energy management, says GŸler, pointing to an energy law that is at the top of the agenda. He also said investment opportunities amounting to around $90 billion exist and that interest in Turkey’s energy sector over the last one-and-a-half years appeared promising. “We are dealing with giant foreign companies,“ he said.
ÊAt the same conference, President of Turkish Industrialists and Businessmen’s Association Arzuhan Dogan Yal�indag said the need for new investment in the energy field had gained a level of urgency but added that the government was not fast enough in laying the suitable groundwork for private sector investments. She said energy had become the major determinant in shaping international policies and the global economy, adding that the steps to be taken in 2008 will affect the coming few decades.
Yal�indag said the world’s energy consumption is estimated to increase more than 50 percent within the next 25 years. This estimate shows the importance of sustainable, competitive and secure energy supplies and translates to “Turkey needing multidimensional energy policies.“ As a neighbor to Russia, the Caspian Sea Basin and the Middle East, which alone holds 73 percent of the world’s oil reserves and 72 percent of its natural gas reserves, Turkey is the best candidate to serve as a hub of secure supply delivery, she said, adding that Turkey should become a more important player in the international energy arena with the help of its geographical location. However, this is only possible pursuant to several conditions, the most important of which is diversifying energy sources and source countries, said Yal�indag, adding that they were pleased with the Energy Ministry’s recent initiative on diversifying energy sources both in Turkey and abroad. She also pointed out the importance of a nuclear power law among these initiatives.
Yal�indag said the second important requirement was speeding up the liberalization of the energy market.