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Gold/Mining/Energy : Canadian Oil & Gas Companies

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To: SofaSpud who wrote (8737)	3/21/2002 10:18:11 PM
From: kingfisher	Read Replies (1) of 24921

RAX worth about $12 IMHO.Scotia says $16.45 net asset value.I say that is being very generous. Rio Alto Exploration (RAX) Target: $19.50 Recommendation: Hold Risk: Above Market Rio Alto reported its year-end 2001 results last night. Cash flow per share (CFPS) was $9.02 versus $7.09. This was in line with our forecast of $9.00. The company announced very significant downward reserve revisions and ceiling test write-downs. As a result, during 2001, proven gas reserves were reduced 34% from 1.3 trillion cubic feet to 875 billion cubic feet and proven liquids reserves were down 30% from 49 million barrels to 34 million barrels. About 50% of the downward revision was in the company's tight cardium gas reserves in northwest Alberta. Ceiling test writedowns were $248 million, including $210 million for Canada and $38 million in Argentina. Debt at year-end was $978 million, representing 4x our 2002 cash flow forecast. In response to the announced downward reserve revision, we are reducing our estimated net asset value on Rio Alto from $27.60 to $16.45 per share. This estimate may be subject to further fine-tuning as we learn more about year-end tax pools. We are also revising our 2002 CFPS estimate from $3.20 to $3.45 due to the benefits of some natural gas price hedging that the company has implemented. Our 2003 CFPS estimate is $4.80. This is based on modest capital expenditures of $250 million for this year and modest debt reduction from $978 million to $950 million. We continue to recommend a 3-Hold with a stock price target of $19.50. In Rio Alto's favour, however, is that it has now 'cleared the air' on its reserve situation and it may benefit from "scarcity value" as it is now Canada's third largest natural gas levered producer (after EnCana and Penn West). Scotia Capital Inc. - Equity and Equity-Related Financings Within the last 24 months, Scotia Capital Inc. has undertaken an underwriting liability or has provided advice for a fee with respect to this security.

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