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By Erik Kobayashi-Solomon | 04-06-2010 05:46 PM

An Interesting Play in Oil and Gas

If you're thinking about finding some extra value in gas relative to oil, now's the time, says Morningstar's Eric Chenoweth.

Securities mentioned in this video
SD SandRidge Energy Inc

Erik Kobayashi-Solomon: Hi, I'm Erik Kobayashi-Solomon, co-editor of Morningstar OptionInvestor, and today it's my great pleasure to welcome Eric Chenoweth, who's associate director of equity research in charge of energy. Eric, thanks for coming.

Eric Chenoweth: Thanks for having me.

Kobayashi-Solomon: OK. I have to start off with kind of a simple-minded question. To me, natural gas and oil--what's the difference between natural gas and oil?

Chenoweth: Sure. Very simply, you find them, typically, in the same spots of the world when you're producing them, but the end market is where they're consumed a bit different. Oil tends to dominate the transportation market, refined products like gasoline and diesel and jet fuel that move us around. Natural gas tends to be used for heating--home heating, commercial heating, and power generation are the biggest markets there.

Kobayashi-Solomon: So, some shared drivers. Generally, if the economy is good and people are moving around and moving things around, then oil...

Chenoweth: Certainly. Both are economically sensitive. Gas has a little bit more of a weather feature to it.

Kobayashi-Solomon: Sure. OK. So I just wrote a QuickShot option idea on SandRidge Energy. It's a bullish position, more speculative than we usually do. This company seems really interesting. November of last year, they were a natural-gas E&P, a natural-gas exploration and production company. Now they look a lot different. Can you just kind of walk us through how they've changed over the past few months?

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