Energy's winners and losers in 2006

NEW YORK (CNNMoney.com) -- Even with oil prices little changed from the end of 2005, 2006 was still a very good time to be an energy investor.

The AMEX oil and gas index is up nearly 14 percent in the year to date, while the electric utility index on Baseline is up 17 percent, and the Wilder Hill clean energy index is up about 6 percent.

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But within these broad categories, which companies pulled the weight, which were laggards and what trends can investors look forward to next year?

In the oil and gas sector, the big integrated oil companies turned in stellar performances.

As of Tuesday, ExxonMobil (Charts) is up 35 percent in 2006, Chevron (Charts) has gained 28 percent and the stock of ConocoPhillips (Charts) has risen 23 percent.

"They are printing money," said Fadel Gheit, an energy analyst at Oppenheimer, noting that while crude prices have fallen, they are still well above the $20 a barrel range seen in the late 1990s. "It's double the wildest expectation."

Smaller oil companies like Marathon (Charts) and Occidental (Charts), still considered integrated as they have production, refining and marketing divisions, also did well. Marathon rose 49 percent this year, while Occidental is up 22 percent.

The strong performance of the integrateds can be partially explained by the fact that the price of oil fell, coming off a high of more than $78 a barrel in mid-July to around $60, where it has traded for the past couple of months.

"It's the flight to quality," said Gheit. "When the price of oil started coming down investors jumped into the safer stocks."

The fall in oil's price has, however, hurt more specialized companies, the stock of which tends to depend more directly on the price of crude.

The stock of refiner Sunoco (Charts), for example, lost 20 percent this year. Gheit said the company, which specializes in refining light crude, was unable to take advantage of the price difference between heavy and light grades of oil.

Exploration and production specialist Anadarko (Charts) fell 10 percent in a year during which it made big acquisitions, including the $21 billion outlay for Western Gas Resources and Kerr-McGee Corp. back in June.

"Their debt is totally out of whack and investors panicked," said Gheit.

Looking ahead, a similar trend is expected to continue in 2007, as the price of oil is seen trading in a fairly narrow range. Most analysts predict that crude will trade at between $55 and $70 per barrel in 2007.

The stable price at a relatively high level should benefit the integrateds, analysts predict, as they can better plan operations at each stage of development.

Bruce Lanni, an oil analyst at A.G. Edwards, says the integrateds, which usually have price-earnings ratios about 20 percent lower than the S&P 500, are, by that yardstick, currently trading at a discount as high as 35 percent.

He expects them to be solid performers in 2007.

"The share buybacks are just enormous," he said. "And their balance sheets are squeaky clean."

In the renewable field, 2006 was the year of ethanol. Several companies went public this year, including the nation's No. 2 producer VeraSun (Charts), which debuted near the peak of the ethanol craze in June at around $28 a share, well above its target price.

Yet, VeraSun fell steadily for several months after its IPO, and most other ethanol stocks have cooled considerably since their spring highs as the challenges surrounding the product - producing it cheaply, shipping it, finding enough raw materials - sink in.

Still, a subset of companies specializing in making enzymes for ethanol production - a critical step where there is room for big cost cuts essential to commercialize cellulosic ethanol, which promises the ability to replace gasoline on a much larger scale - have made astounding gains.

Diversa (Charts) and MGP Ingredients (Charts) are two of the best performers on the Wilder Hill clean energy index, a 43-company index that covers all types of clean energy firms. Diversa stock is up 108 percent, and MGP has risen 81 percent.

Other top performers on the index: MEMC Electronic Materials (Charts), which makes solar panel components, and OM Group (Charts), which supplies specialty metals for batteries.

While the push to renewable energy is helping these stocks, they may also have benefited from silicon and commodity prices in general this year.

At the bottom end of the index lies hydrogen companies. Hydrogenics (Charts) lost 60 percent, while Quantum Fuel Systems (Charts) has fallen 37 percent. Hydrogen firms, said Rob Wilder, manager of the index, are having trouble as they attempt to commercialize an expensive product with hardly any distribution system.

"There's just been this steady cold rain of reality," he said.

By contrast, Wilder expects ethanol firms to continue doing well in 2007 as the Democrats, seen as more keen on government subsidies for the fuel, take control of Congress.

Utilities also turned in a solid performance in 2006.

Doug Fischer, an electric utilities analyst at A.G. Edwards, said the sector, considered a defensive play, benefited as the economy slowed.

But there was more involved.

Low interest rates, high wholesale power prices and approval for capital expenditures (which can be passed on to ratepayers) all contributed to rising share prices.

Allegheny Energy (Charts) and FPL Group (Charts) were among some of the years top performers among utilities in the S&P 500, with stock gains of 45 and 32 percent respectively.

Even the laggards did OK. Edison International (Charts) and Southern Co. brought up the rear among electric utilities in the S&P 500, yet they rose 6 percent and 8 percent respectively.

But the outlook for 2007 may not be as good.

"The positives are well known," said Fischer, noting that lower natural gas prices could depress wholesale power prices. "The question is, how much higher can you go from here?"

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