WSJ-

Energy Sector Still Shows Power
By TONY COOKE
April 19, 2006

As crude-oil prices continue to set records, insiders at energy companies are betting that the sector's bull run still has legs, according to a study by Thomson Financial.

Stock purchases by insiders remain high even though the S&P Energy Index has appreciated 73% during the past two years, said the study's author, Thomson Financial senior quantitative analyst Mark A. LoPresti.

The sector's rise has been driven largely by the ascent of oil prices, Mr. LoPresti said, and continued insider buying indicates an expectation that the trend will continue. Crude oil topped $71 a barrel for the first time this week.

The study, which includes insider stock acquisitions through option exercises as well as open-market purchases and sales, indicates that energy-sector insiders during the past six months have sold $1.03 of stock for every $1 bought.

"The selling and acquisition activity have been just about at parity, and you almost never see that," Mr. LoPresti said.

Insiders typically sell more stock than they buy, partly because top-level executives receive a significant amount of their compensation in the form of stock or stock options. Insider purchases are regarded as a stronger signal than sales because sales can result from many motives, including the wish to diversify, while purchases are presumed to be motivated by a desire to make money.

A ratio of around $1.50 in sales for each dollar of purchases would signal neutral sentiment from insiders, Mr. LoPresti said.

He said energy companies with noteworthy insider buying in the last month include Dallas oil driller Ensco International Inc., Houston energy-services company Enterprise Products Partners LP, and Chesapeake Energy Corp., an Oklahoma City natural-gas company.

Purchases at individual companies can sometimes be influenced by company-specific matters, such as executives' desire to show support for their companies. But Mr. LoPresti said such motives aren't likely to apply when insiders in an entire sector turn bullish.

Insiders have been buying energy stocks for several years, apparently anticipating the continued rise in oil and gas prices, Mr. LoPresti said.

"The fact that you're still seeing buying at these high prices makes you wonder why these insiders want to add to their positions," he said. "They're doing so well already."

He said that the sustained rise in the shares of energy companies resembles the soaring of technology shares before 2000, with one key difference: Stock sales by technology-company insiders increased dramatically before the bubble burst.

"It's characteristic of insiders to sell when there is strong momentum," Mr. LoPresti said, "and we're not seeing that here."