One of the hottest summers on record, back-to-back Category Three-plus hurricanes on the Gulf Coast, refinery disruptions and bottlenecks plus high energy demand have all combined in recent months to propel oil and gas prices to historic levels. Now, as the winter-heating season approaches, investors have more than a few questions on their minds. Will E&P stocks figuratively run out of gas? Just how expensive are they right now? What pricing assumptions are they discounting? Will the U.S. itself quite literally run out of gas in the event of a Katrina-size winter cold snap? Finally, what's the best way today to position an upstream portfolio? Shannon Nome, E&P analyst for JP Morgan Securities in Houston, tackles this tidal wave of issues in an early fall report. To answer the first three questions, she has developed a model that calculates the price deck imbedded within E&P share prices, based upon year-end 2004 SEC PV-10 disclosures rolled forward to estimated year-end 2005 values. "Currently, our 'price discounted' model indicates that E&P stocks are discounting $6.82-per-Mcf (thousand cubic feet) gas over the life of their reserves, or roughly $45-per-barrel oil, on a pre-tax PV-10 basis," Nome says. She's quickly adds, however, that on an after-tax basis, these stocks appear roughly 14% more expensive, discounting closer to $7.80-per-Mcf gas. "This is an important distinction since, in this high commodity-price environment, most producers are paying cash taxes given their significant earnings generation." For more on this, see the November issue of Oil and Gas Investor. For a subscription, call 713-993-9320, ext. 126.