Today was a landmark in oil: $80.00 per barrel was hit briefly.  If you were hoping that the OPEC raised production targets yesterday was going to be a huge help, guess again.  There are still supply near-shortages and perpetual disruptions and this could even be just an admission that OPEC countries were admitting to cheating.  T. Boone Pickens was right: he predicted $80.00 oil before he turns 80, and that isn’t until next May.

Determining exactly who wins in the sector is not a fair task to most companies if they are in the energy patch, because the answer is "almost all of them."  Here is a brief note:

Exxon Mobil (NYSE:XOM) is mostly unhedged and takes current market conditions meaning it runs the course and pays current rates and charges current rates rather than entering as many forward contracts.  As a fully integrated company, it’s the go-to name.  Shares are up 1.5% at $88.20, and that is after more than a $2.00 gain yesterday.

Schlumberger (NYSE:SLB) is the winner for the international oil services sector.  National Oilwell Varco (NYSE:NOV) is far smaller (relative basis, its market cap is over $24 Billion) but it has been able to charge nearly whatever it wants and if production is going up and commodity energy prices remain they will get to charge whatever they want for what may be an indefinite period.  With an embedded license to gouge, it’s hard to argue against the premium.

Valero (NYSE:VLO) is the largest independent refiner with a $37 Billion market cap. The only issue that is there besides outages and interruptions is that higher oil prices ramp its expenses and that mistakenly creates a worry among analysts that their net earnings numbers may be at risk.  If you go look at the earnings history as prices have risen, you’ll see they win despite those fears.

You’d think that solar power players would be the key winners, although the alternative energy ETF’s and First Solar (NASDAQ:FSLR) is down 1% (down almost 20% from year highs) and SunPower Corp. (NASDAQ:SPWR) is up 1% (and only about 10% from highs).

What is even harder to fathom is the higher coming pump prices as many are paying less now than when oil was screaming up previously when it was more than common to see $3.00 this Spring.  Less is a relative term, as my own gas buffet runs over $50.00 to be topped off.

It turns out that owning oil patch and energy companies is going to end up being one of the few hedges to higher energy costs for the public.  When these critical milestones are hit, it is frequent that higher prices ultimately prevail.  It’s obvious that this list has butchered off many names on here, and we left off the names that are in pending mergers.  There are now literally hundreds of plays out there. 

The easiest basket you can get for this is generally these two ETF’s: Oil Services HOLDRs (AMEX:OIH) and Energy Select Sector SPDR (AMEX:XLE).

Jon C. Ogg
September 12, 2007

Jon Ogg can be reached at [email protected]; he produces the 24/7 Wall St. Special Situation Investing Newsletter and he does not own securities in the companies he covers.

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