The economic recovery will be arduous, said John Olson, managing director for Houston Energy Partners, speaking to attendees at Hart Energy Publishing’s Energy Capital Week Forum.

“The real issue now becomes one of the shape of the recovery,” he said. “E&P economics are still challenging, and the orders of the day are going to be downsizing and deleveraging.”

Olson warned that the current window of rising stock prices may be temporary, as “hot money becomes cold money,” and noted that investors should be aware that “stock market euphoria clouds serious valuation issues.”

“Never confuse brains with a bear market rally,” he said. “Right now we have a bull market, but just enjoy it while it lasts. The world has changed, but we are at the end of the beginning. Restructuring and consolidations are coming.”

Jim Wicklund, principal for Carlson Capital LLC, agreed, saying “The buyside is bullish longer-term, bearish near-term, and worried.” But long-only investors, such as pension fund managers that “buy stock and sit back,” usually need only to generate a return of 7% to 8% per year, so if energy stocks double over the next three years, “they are heroes,” he said.

“The hedge funds, guys like me, are looking for a correction,” said Wicklund. Hedge fund managers believe the apparent near-term recovery has happened too quickly, oil is too high, and people are expecting gas to rebound too much. “We are close to the end of the worst recession in 50 years,” he said.

Wicklund predicted that gas prices will find the bottom in the next three months, and when it does, that gas price will be the lowest for the next eight or nine years. The time to buy energy stocks is now, in the second and third quarter of 2009, he said, noting as an example that Sandridge Energy Inc.’s stock price recently doubled in three months.

“What hedge funds love right now is oily and shaley,” he said. “If you are a conventional gas producer, you need to get a white suit and dance like John Travolta. You are so passé, it is almost scary.”            

Conventional gas producers have high costs and “have to go actually find the gas,” he said. Meanwhile, shale gas production has become a logistical business, so the most valuable skill is to be able to manage large-scale logistics very well. Management teams that can do that have become very popular on Wall Street, he said.

A significant amount of money has come into the energy sector recently, making it “one of the best-performing sectors of the economy,” said Wicklund.

Regarding gas prices, the future strip “is not a predictor of future gas prices,” he said. It is a reflection of today’s gas prices, and what companies can hedge forward. There is very little confidence in price, but the long-term outlook is still positive.

“I have to throttle back the owner of my company, every month, because he wants to go out and hire an engineer and a geologist and start leasing land. Everyone wants to be an oilman, because it is obviously easy, and that is the way to get rich.”