Exploration and production company executives vented their frustrations over seeing upstream oil stocks' prices stay badly depressed when crude oil was selling in the $30-per-barrel range. "At these oil prices, our business is doing well," Burlington Resources Inc. chairman Bobby Shackouls said at the annual PaineWebber energy investment conference in New York. "That's why the disconnect with our share price is so disconcerting." Unocal Corp. chairman Roger C. Beach conceded that he also was somewhat mystified that E&P stocks are badly out of favor with the market. "Unlike many of the dot-com companies, they have tangible assets and are making money," he said. "But investors want to see strong near-term results, not simple long-term potential." Oil executive discontent with market perceptions of their firms was not confined to the upstream. "There's a dirty little rumor that refining and marketing companies are boring and low growth," said Tosco Corp. chairman Jay Allen. "But if you look across the industry, there's only one company that has outperformed ours over a five- or 10-year period, and that's BP Amoco Plc." Consequently, many of the presentations during the conference emphasized improving returns to shareholders. "Investors want not just growth, but a high rate of return," maintained Murphy Oil Corp. president Claiborne P. Deming. PaineWebber oil analyst Bob Morris, who has since moved to Salomon Smith Barney, said, "Their shareholders have been hitting them over the head with [performance] for a couple of years now. Many [upstream chief executives] finally started to get the message." Shackouls said Burlington Resources' returns have to be competitive with those of major oil companies so that the Houston independent will be able fund high-return projects. "We feel that if you create high returns, the volumes will follow." Several executives said any acquisitions will have to meet strict standards. At Occidental Petroleum Corp. that means that they will need to be accretive immediately to earnings and cash flow under an $18-per-barrel price scenario, according to Ray R. Irani, chairman. Any future Oxy asset purchase also must not harm the balance sheet on a year-to-year basis, he added. Irani said that Oxy's oil and gas strategy is to build on large core assets in the United States, Latin America and the Middle East. Worldwide, he noted that the company has reduced its holdings from 24 countries in 1997 to seven in 2000. At the same time, Oxy's production has climbed from 395,000 to a projected 412,000 barrels of oil equivalent per day. "The production comes from higher-quality assets. The barrels have more earnings value, and generate higher returns to the shareholder," Irani said. Other executives said that they expect high-quality projects to help their companies improve their returns. Anadarko Petroleum Corp. intends to bring its return-on-capital-employed into the double digits, putting it in a league with megamajors like Exxon Mobil Corp., Shell and BP Amoco. "But our main goal is to create long-term value for our shareholders," said Robert J. Allison, the Houston independent's chairman. "We deliberately have concentrated on projects that have high margins and are capable of generating high returns." Ocean Energy Inc., meanwhile, wants to bring some financial discipline into its operations now that it has absorbed Seagull Energy Corp. "Neither company had done a very good job of managing its finances prior to the merger," said William L. Transier, the Houston independent's executive vice president and chief financial officer. "We had to take a combined company that outspent its cash flow in 1997 and 1998 and bring it back into line." OEI was able to bring the ratio of its debt-to-total-capitalization down from 78% at the end of 1998 to 58% a year later. "We think that it's important to get back to an investment-grade rating as soon as we can," said Transier. "That would help us implement our programs by providing more favorable terms when we go to the capital markets. We plan to get there with continued financial discipline." -Nick Snow