just some reading

found on ctp forum http://www.thebull.com.au/articles_detail.php?id=6440

An energy stock portfolio for resources enthusiasts

Woodside Petroleum is a comfortable fit in most investment portfolios. Australia’s biggest listed oil and gas producer tops Peter Rudd’s list in building an energy portfolio for capital growth.

Rudd’s other choice energy plays include Energy Resources of Australia, Peninsula Minerals, Santos, Centennial Coal, Geodynamics, Eastern Star Gas and Golden Gate Petroleum. His portfolio of proven performers and speculative stocks isn’t a recommendation to buy, but it’s worthy of serious consideration in a sector widely expected to benefit from strong demand in Australia and overseas.

While Woodside Petroleum is poised to benefit from a stronger oil price, Rudd, of Balnave Capital, says the company’s Pluto project offers particularly exciting potential when the first and second stages build to full production by 2014. “It means the company will be involved in eight of the 10 conventional gas LNG production trains,” says Rudd, a director of mining and resources. “Woodside is already a major independent supplier of LNG to global export markets via its 16 per cent interest in Western Australia’s North West Shelf. I expect stronger demand for LNG, particularly from Asia, as the global economy recovers.” Woodside Petroleum reported net profit after tax of $898 million for the six months to June 2009.

Energy Resources of Australia operates the long-established Ranger mine in the Northern Territory. Rudd says it produces enough uranium to supply an equivalent 90 per cent of Australia’s energy needs. Instead, it exports yellow cake primarily to South-East Asia, and Rudd says revenue is set to increase amid supply contract negotiations at “much higher prices”. “Exploration success beneath and alongside the existing open cut has extended mine life, thereby ensuring production for a further number of years,” he says.

Rudd says he doesn’t consider dividends when buying energy stocks. “Energy exposures are capital growth plays from my point of view,” he says. “I wouldn’t buy Woodside Petroleum for dividends. For income, you can do much better elsewhere.”

Rudd says the big energy producers generally offer reliable revenue and earnings streams, but their outlooks still require close examination. Small energy explorers offer potential, but investors must be comfortable with company prospects and have an appetite for higher risk. “And that means examining the quality of management as it’s likely to say something about the chances of a project succeeding,” he says.

Peninsula Minerals, a uranium explorer in South Africa and the US, sits comfortably in Rudd’s higher risk category. “An $11 million capital raising in July positions the group well to fund its ongoing exploration leases,” he says. “Peninsula Minerals is speculative, but it’s a potential producer as it’s likely to establish reserves.”

Rudd says depleting reserves at the Santos-owned Moomba oil and gas processing facility in South Australia’s Cooper Basin will be more than offset by a joint venture with Malaysian company Petronas, the world’s third largest LNG producer. He says the joint venture to develop an export LNG facility based on coal seam gas at Gladstone in northern Queensland diversifies Santos’s revenue and brings an export component to earnings.

China’s demand for electricity is insatiable. China expands power capacity by the equivalent of Australia’s total every four months, Rudd says. Most of China’s power stations use steaming coal, although there is a shift to nuclear power. He says steaming and coking coal is Australia’s biggest export earner.

Rudd says Australian energy companies have the capacity to export more as international counterparts reduce their exports to satisfy growing demand in their own countries. “As emerging nations become more prosperous, demand for energy at home typically increases,” Rudd says. “Energy is a pretty exciting and diverse sector and Australia is at the forefront internationally.”

Centennial Coal produces about 15 million tonnes of mostly steaming coal a year, extracted from 12 mines in the Lithgow and Lake Macquarie regions of New South Wales and delivered to nearby power stations to produce electricity for the state grid. Rudd says Centennial Coal has long-term contracts with the NSW energy industry and fuels almost 50 per cent of the state’s coal-fired electricity. Centennial has been collectively increasing coal exports to Japan, Korea, India, Europe and South America.

Hot rocks company Geodynamics provides exposure to renewable energy in a world seemingly committed to reducing its reliance on fossil fuels. Geodynamics is among Australia’s biggest renewable energy groups and the most advanced at developing this source of energy, which, Rudd says, offers “exciting prospects”. “Its hot fractured rocks program involves drilling to a depth of 3.5 km where the underlying granites in the Cooper Basin reach a temperature of 235 degrees Celsius,” he says. “Water injected under pressure in one well reacts with the granite and returns as steam via another well. This drives a turbine producing electricity that’s free of carbon emissions. This is a speculative stock for those willing to diversify and increase their risk/reward profile. Geodynamics gives investors exposure to a green energy source at the development stage. And that’s when you can find good value.”

Eastern Star Gas is a big holder of coal seam gas leases in Australia and about the 10th biggest oil and gas stock on the ASX. As Santos is Eastern Star’s biggest shareholder, Rudd says corporate activity is usually on the radar screen.

Rudd says Golden Gate Petroleum offers exposure to US cash flow from oil and gas producing wells in Louisiana and west Texas. “Cashing up through a rights issue, Golden Gate will be in a good financial position to fund the drilling of more new wells,” Rudd says. “Success in this work can be readily translated into cash flow given the proximity of established pipeline infrastructure that can deliver products to markets.”