Drilling for Growth

The selector: John S. Segner, manager of the Invesco Energy fund.

* His record: Up and down and lately up again--with oil prices. Segner took over in February 1997, and for that year the fund returned 19%, according to Morningstar. In 1998, it lost 28% as oil prices dived. The fund has bounced back big this year as oil and gas prices have soared, returning 53% through Monday. Segner, a former engineer, worked for Texaco and Amerada Hess before switching to the money management field.

* His philosophy: Segner strives to run a diversified energy fund, spreading his bets among exploration/production, services, pipeline and international oil companies. But he is giving service-oriented companies a little extra weight these days, thinking they may be poised to benefit most as the energy sector continues its rebound, a run he expects to last at least 18 to 24 more months. The $179-million Denver-based fund also is tilting toward mid-cap names, as the sector continues broadening beyond the big-cap dominance of recent years.

* His Picks: Talisman Energy and Noble Drilling

Talisman Energy

Ticker symbol: TLM

Market capitalization: $3.9 billion

Latest-quarter sales: $318 million

Estimated 1999 earnings per share: 37 cents

Weekly closes since September 1998 and latest:

Monday: $31.88

Talisman is the largest independent oil and gas company in Canada, though most of its growth is coming from foreign sources, including the North Sea, Segner said. Shares of the former British Petroleum Canada have almost doubled this year but still trade at only about four times this year’s estimated cash flow. “It’s like buying Anadarko Petroleum, with the same kind of rising production profile, at a fraction of the multiple,” Segner said. “It’s extremely well-managed, run by a former BP guy, and last year the stock was just grossly oversold.” He notes that Merrill Lynch and Morgan Stanley analysts recently began covering the stock, with positive ratings. “Now that everybody in Canada owns it, it should catch on in the U.S.”

Noble Drilling

Ticker symbol: NE

Market capitalization: $3.3 billion

Latest-quarter sales: $176 million

Estimated 1999 earnings per share: 67 cents

Weekly closes since September 1998 and latest:

Monday: $24.56

Segner believes that Noble Drilling, which has repositioned itself as an offshore driller in recent years, can sustain solid earnings growth through 2001. He expects that 55% of next year’s net income will come from deep-water rig drilling--a high-margin area. Noble is “less vulnerable to changes in commodity prices, since big companies they work with have a limited number of rigs out there,” Segner said. The company is likely to be an “instigator” in the further consolidation of the drilling business, he said, adding that any acquisition by Noble, which is known for its conservative financial management, is almost certain to boost the bottom line.