Just received ABN AMRO's Research Notes on CWEI:
With the exception of the following, under their Investment Analysis, the rest of the report is very positive: Barring an unexpected run-up in oil, CWEI's market performance could be lackluster over the next several quarters. However, a much heightened level of investor interest is anticipated as the Cotton Valley Pinnacle Reef play heats up later this year. To put this gas play into perspective, recent industry Reef discoveries have yielded reserves on the order of 40-80 Bcf per well, which at the upper end of the range holds the potential of doubling the size of the company on only one success. As a consequence, we feel positions should be initiated on price weakness and/or as we approach the fourth quarter.
Everything else on Operations and Performance, Financial Condition, Drilling program, and Earnings Outlook is very positive.
Under Management: We believe that CWEI has a top management team with significant experience in the oil and gas business. Clayton Williams , Jr., through various entities, controls 48.7 per cent of the shares outstanding, while officers an directors as a whole control 49.4 per cent.
Under Investment Risks: The greatest risk associated with CWEI is one of commodity prices and its ability to replace more than 100 per cent of annual production. As mentioned earlier we estimate a replacement ratio of at least 120% in 1997. Furthermore we estimate that a $1 per barrel deviation from our estimate of $19.75 will have a $0.35 to $0.40 impact on earnings per share.
Buzz's note--ABN AMRO is estimating $0.27 per share in the first quarter of 1997. According to my calculations, CWEI should receive approximately $21.00 per barrel of oil and $2.65 for natural gas in the first quarter. Hanifens is estimating $0.51 per share in the first quarter of 1997. CWEI earned $0.19 in the first quarter of 1996. If CWEI should happen to earn 0.51 in the first quarter, per Hanifen's estimate--their trailing last four quarters earnings will go from the current $1.77 to $2.09 per share. Hanifen's has, in the past, proven themselves to be the best analysts when it comes to calculating CWEI's future performance.
Regarding Hanifen's whose write-up I also just received, they say: "key wells to watch include Zackson's Rachui well and Marathon's Savell, each about 9 miles north of CWEI's acreage. Results from the Rachui should be announced soon--the Savell well is drilling at 11,200 ft (03/19/97) and is expected to go to 17,000 ft. Hanifen's is very high on CWEI.
It is only my opinion, but if one of the pinnacle reef wells to the north is viable, we will see investor interest pick up much sooner, than ABN AMRO's early fourth quarter--as in the next month --Zackson's well should be completed by then and Marathon's well should be in the pay zone by that time. I would also think that CWEI will begin benefitting from their 3-D seismic data much earlier by using preliminary results from it to aid their current Austin Chalk drilling. It is the same area. They have been shooting for just about a month now. |
