Mr. Pink's Picks: selected event-driven value investments Message Board

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Strategies & Market Trends : Mr. Pink's Picks: selected event-driven value investments

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To: Mr. Pink who wrote (17200)	10/14/2002 1:59:00 PM
From: ItsAllCyclical	Read Replies (1) of 18998

>> PCG an interesting play too from the long side. << It appears that PCG is more into power generation and more of a tradional util. I'll look into more though. But right now I'm not terriblely interested. The spreads in that sector will continue to be low for at least another year maybe longer. I'd rather play an index of util vs individual plays as nobody is really sure about the survivors yet. EP gets 1/3 of it's business from the E&P side, 90% of which is natural gas. It's likely profitable above $2.25 natural gas and right now NG is above $4. Winter is shaping up to be a cold one. The side of the business is a cash cow. They are the 5th largest producers of NG in the US. Part of the problem with the IPP's is they are trying to sell assets at the same time in a depressed market. The market is extremely good for E&P assets with $30 oil and $4 NG. These assets alone would easily fetch $10-12 billion. Unlike the utils and the IPPs, the profit levels are very good in 3 out of the 4 major lines of business for EP. So if you don't mind, can you please explain to me why you're short EP at these levels? I could understand 15 or higher, but not shorting at 6 and change. Shareholder lawsuit? Yes, I'm aware of it and not terribly worried. The FERC ruling? Will be overturned eventually. It can be appealed for years and fines, if any, will not be paid anytime soon. In the meantime EP has 3.5x cash flow coverage on their debt payments. Have their been any other major fines regarding CA power crisis that you can think of? No. Certainly nothing even over 500 mil so far. CPN (Calpine) renogociated their power contracts and ended up paying 6 mil/year for 3 years. EP's profit during the time in question was a walloping 200 mil. This is so overdone at these levels imho.

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