As we noted in the recent cover story, "Northeast Buyside," the value players among institutional investors were out in force in late 2001, snapping up undervalued energy stocks amid a then-depressed commodity-price environment. But by this spring, at the Howard Weil energy conference in New Orleans, there was a discernible shift in the makeup, mood and population of the buyside. "We saw value players taking a little money off the table-a little profit-after the substantial appreciation in the Oilfield Service Index (OSX) and oil and gas stocks in general during the early part of 2002," says William H. Walker, president of Howard Weil. "Meanwhile, we saw momentum players-including hedge-fund investors-getting aggressively involved in energy stocks. "Their current enthusiasm is prompted, in large part, by the recent rebound in commodity prices, which is being driven by the war premium in oil and the attendant rise in natural gas prices. Also, these players believe the energy sector is in good shape versus the rest of the market, toward which they're a bit more ambivalent." Walker notes that buysiders attending this year's conference-there were 375 of them versus 350 last year-seemed mystified that, with the recent run-up in commodity prices, there wasn't commensurately more spending by E&P companies and major oils on drilling new wells. Investors, of course, use upstream spending levels to gauge how aggressively to trade the stocks of oilfield service companies dependent on those outlays. "Certainly, there's more spending, but it's being done in a measured way-not like in the past," he says. "What we're witnessing is discipline-the driver of recent industry consolidation-by a new era of management teams that understand the importance of return of capital employed and return to shareholders. That's why these managements are delaying much of their capital spending plans until later this year. They want first to see some predictability in commodity prices." Increased buysider interest in the energy sector is also being fueled by decades of change. "Some 20 years ago, energy represented 26% of the [value of the] S&P 500, and all we did was destroy capital," says the Howard Weil head. "Today, energy is only 6% of the S&P, but it's a far better-run business, and investors sense there's now too little money committed to this sector." The topical stories of a substantial number of energy conglomerates, including Dynegy, El Paso and The Williams Cos., played to packed buyside audiences at the conference. "After the Enron debacle, investors are trying to figure out where the value lies in this sector and which companies are going to be the major players down the road." Separately, in our January issue, several New York market-makers predicted oil and gas issuers this year would eschew public equity deals and instead tap-in a big way-the public debt markets. Chansoo Joung, managing director and natural resources group head for Goldman Sachs, said, "Producers and service companies are going to continue to spend carefully and focus on returns, so I see very selective demand for equity issuance in first-half 2002; currently, the public debt markets are not only available, but attractive, for energy issuers." M. Scott Van Bergh, managing director and co-head of Salomon Smith Barney's energy finance group, added, "On both the investment-grade and high-yield debt side, investors will continue to be very interested in energy because it's viewed as a defensive sector, given where the economy is now." Todd Maclin, group executive for JPMorgan Securities' global oil and gas group, said, "Amid [relatively] low stock valuations, operators are reluctant to issue equity; with relatively strong balance sheets, they're inclined to finance with debt." Sure enough, this April alone witnessed a virtual flood of public debt offerings for energy issuers, including Anadarko Petroleum, Amerada Hess, Apache, Kerr-McGee, Vintage Petroleum and XTO Energy. "Interest rates were low, and the stock prices of many E&P companies were too low for them to issue equity," says Walker, whose own firm recently comanaged a public debt deal for Stone Energy. His near-term outlook for equity deals: "It's going to take higher interest rates and sustained commodity prices-which will stabilize stock prices-before we see a normal level of equity issuance. I don't see that [normal level] occurring until first-half 2003."