Investors wasted no time in pushing ASX energy company share prices to record highs in the past few months, but is it too late to get on the bandwagon? Well that depends on an individual’s investing objectives, but the mid-to-long term outlook is promising. But today’s high share prices encapsulate a note of caution that short-term investors can be easily burned if momentum stalls due to changes in global factors or internal company operations.

With Australia’s biggest oil and gas producer Woodside Petroleum trading at mid-to-high $60 price levels, it begs the question, “is it still a good buy”? Yes say analysts, but investors may be able to pick it up cheaper on any hiccup in global oil and gas markets, or simply profit taking. Pumping more Middle-Eastern oil into global economies would soften the crude oil price and, in turn, Woodside’s share price, as would Nigeria over coming its supply disruptions, or Russia investing in its decaying infrastructure. Recently, crude oil breached $US130 a barrel.

Woodside has put on about $30 a share since August 16, when the US sub-prime crisis began to unfold. And even a Federal Government Budget decision to impose a 30 per cent excise tax on condensate (a light crude oil extracted from wet natural gas) did little to dampen Woodside’s share price. But as one analyst said: “No stock can straight line up indefinitely.” However, even if Woodside’s share price stumbles, analysts expect it to reward investors over the mid-to-long term as new projects come on stream and the company benefits from strong LNG (liquefied natural gas) prices.

Woodside Petroleum share price 2003-2008

What appeals about Woodside is its vast oil and gas reserves, not only flowing from its North West Shelf ventures in WA, but from other stgelopments in the US, Gulf of Mexico and Algeria. Woodside has exploration and stgelopment interests in five continents. Research manager Peter Rudd, of Carroll, Pike & Piercy, says the sheer size and earnings potential of Woodside Petroleum should make it part of any balanced share portfolio. Rudd says Woodside Petroleum produces about 220,000 barrels of oil equivalent a day. “And it’s one of the world’s largest LNG producer’s, so buying Woodside exposes investors to international energy trends and new expanding production.”

Global demand for oil is increasing by about 1 million barrels a day and experts say Saudi Arabia’s recent decision to raise output by 300,000 barrels a day does little to address the shortfall. Saudi Arabia will lift output to 9.45 million barrels a day in June.

And with no new major oil fields on the horizon and the OPEC cartel’s hand firmly on the supply lever, increasing demand will continue to put upward pressure on price. Days ago, Dr Burton Malkiel, a highly regarded economist and author, told an audience of analysts and investors: “I think there may be a lot of speculation in the price of oil, but I think there is something fundamental behind the rise in oil and raw materials and that is growth in China, and, to a lesser extent, India. I think that will continue. So if you don’t like $128 oil now – it might be $80 next month – but five years from now, it will be more expensive in my view.”

Other analysts have forecast sharply higher oil prices over concerns about declining supplies. Arjun Murti, of Goldman Sachs, warned of oil between $US150 and $US200 a barrel over the next six to 24 months. His latest view quickly gained world-wide attention as he correctly predicted in March 2005, when crude traded at $US55 a barrel, an oil superspike above $US100. And, in the past few days, US billionaire hedge fund manager Boone Pickens predicted oil will reach $US150 a barrel this year. Pickens said: “Producers are running out of oil.”

BHP Billiton is another major oil and gas producer, but the world’s biggest miner is so diverse that you can buy it for any number of reasons, including a bright outlook for iron ore and coal prices. Big energy producers to small explorers are riding the higher price wave, but examining company fundamentals is the proven winning investment formula that should also factor in surprising global events that may have a negative impact on the sector.

Colin Campbell, of Wilson HTM, says Australian Worldwide Exploration recently upgraded oil production at its Tui field by 2000 barrels a day to an average 47,000 barrels a day and is selling into the current spot market. If AWE is successful in its bid for Arc Energy, it will gain a promising portfolio of production and exploration assets. Outside the bid for Arc Energy, AWE is an excellent performer. Campbell says Nexus Energy, an oil and gas explorer and producer, has withdrawn its bid for Anzon Australia and is concentrating on stgeloping its Crux and Longtom fields. Nexus has an active exploration program planned in the Gippsland, Bonaparte and Browse basins in the next 12 months. “Using conservative oil prices and adjusting for risk on their projects, we have a target price of $2.35,” he says.

Carey Smith, of Alto Capital, says Australia’s biggest independent thermal coal producer Centennial Coal is ramping up production and is in negotiations with Asian power plants. China is now a net importer of thermal coal, using more than 2 billion tonnes a year. The thermal coal spot price has more than doubled in the past 12 months to about $US135 a tonne and Centennial’s share price is lagging its competitors despite it offering corporate appeal. Smith says Santos, Australia’s second biggest independent oil and gas producer, offers good prospects despite its share price spiking more than 30 per cent in the past two months on the back of higher energy prices. Santos also sells a lot of LNG in a growing Australian market.

Angus Geddes, of Fat Prophets, says Oil Search will benefit from ExxonMobil’s agreement to commercialise its vast LNG reserves in Papua New Guinea. He says Asian countries consider LNG a cheaper and cleaner alternative to coal and PNG is on the doorstep of Asia, where there is massive demand. Production should start by 2013 and reserves offer a long mining life. Geddes says Oil Search should reward investors over the longer term. Geddes also likes Woodside Petroleum, but so do most other investors and analysts.