Friday, April 21, 2006

An energy investor more nuts bullish than me.

A hedge fund manager with 80% of his portfolio in energy service? Sounds nuts, right?

But here's the kicker: He is a former energy analyst who, when he couldn't understand Enron, refused to put a buy rating on it, and stood his ground until Merrill apparently forced him out as a result.

Who looks nuttier on that one?

Energy Tribune: Energy Tribune Speaks with John Olson.


John Olson never made any friends at Enron. But he’s made a name for himself as one of the savviest energy analysts in the United States. As an equities analyst at Merrill Lynch, Olson refused to put a buy rating on Enron, a refusal that led Merrill to offer him early retirement – he wasn’t given another option. Olson left Merrill but it hasn’t hurt his career one bit. During his 30 plus years as an energy analyst, he has worked at Drexel Burnham, First Boston, and Goldman Sachs. He got his first job in Houston with Rotan Mosle in 1979. He spoke to ET’s managing editor, Robert Bryce.

ET: Your hedge fund did very well in 2005. But it appears the energy markets have cooled off during the first quarter of 2006. What do you see happening for the rest of the year?

JO: The expectation is that oil prices will hover around $60 to $65 until next January. However, gas prices are down to about $6.75 and are expected to go to $4.70 or $4.80 and recover to $7.40 by next January. So the stock market for natural-gas related companies and service companies has come under a lot of pressure…. [But] the earnings trends of this industry remain very, very strong. Earnings trends for big oil companies were up about 59% in 2005. For oil service companies, they were up about 142%. Most of the growth money is going to end up in oil service companies because of their earnings growth prospects. Our portfolio is 80% in oil service companies.

Life is going to be very good. What can go wrong is that gas goes down to $4.80 and stays there or crude goes down to $50 and stays there.

ET: What’s the most important trend you see developing in the energy sector?

JO: The increasing difficulties with oil and gas consumption and supplying that consumption are going to force a rearrangement of priorities. But no place needs more reform than America. We are using 22 million barrels per day of the world’s 85 million barrels per day, and over 15 years, we may go to 25 to 27 million barrels per day versus the world’s 105 to 110 million barrels per day. We can ill afford it already. The trade deficit on oil imports was $100 billion last year and there’s no end in sight.