On Thursday, we examined why the oil sector will be one of the most profitable sectors to round out 2008, and gained insight from Jason Votruba, vice president and co-portfolio manager of the UMB Scout Small Cap Fund, and Richard Wyman, vice president and senior oil and gas analyst at Canaccord Adams. Today, Votruba and Wyman name their favorite small-cap oil and gas stock picks.

Wyman favors oil and gas companies with an established land position, which he calls “scalable repeatable growth opportunity.” The analyst has “buy” ratings on ProEx Energy Ltd. (TSX:PXE), a natural gas unconventional player; Pearl Exploration and Production Ltd. (TSV:PXX), a heavy oil player; and Sterling Resources (TSV:SLG), an exploration and production company drilling in the U.K. sector of the North Sea and Romania. Wyman said Sterling is a bit riskier, but has an active drilling program.

Votruba is overweight energy in his portfolio, with energy comprising 20% to 25% of the fund manager’s diversified small-cap fund. This compares with the Russell 2000 (NYSE:IWM), for which energy composes 7%.

Among small-cap oil and gas companies, Votruba recommended oil and gas exploration and production company Swift Energy Company (NYSE:SFY). “[It’s] probably one of my favorite picks right now in the E&P. I see it as more of a lower risk play. It’s involved in lower-risk development, and not doing a lot of wild-cat exploration; it’s on their existing properties.” 

Swift Energy has had its obstacles. Investors rebuked the company in the past after management decided to commence operations in New Zealand — a move that boded poorly in retrospect. Management lost credibility with investors as a result, but Votruba thinks the company’s back on track. According to Votruba, Swift Energy has now surpassed both Chevron (NYSE:CVX) and Texaco as the largest oil producer in Louisiana.

However, the company did see production fall in the first quarter on account of production issues. Specifically, Swift began producing new wells that were shut down after pressure issues arose in a handful of the pipelines, which could cause damage to the oil wells.  But Votruba says he’s confident Swift will be able to get its wells operating again in 60 to 90 days, and thinks production will climb 30% in the . . .

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