Howard Weil has thrown its hat into the small cap E&P ring, see a great 36 pg. writeup they have done at petroquest.com (click on Research and then look for Howard Weil). They've initiated coverage on ATPG, BEXP, CRZO, KCS, MSSN, and PQUE, a list which includes many of my past & present favorites.
Right now the biggest position I have in the above is in ATPG. Weil is calling for their '06 cash flow to be $7.93/share, which results in multiple of under 3 X. The $7.93 figure (no detail is provided for its calculation) is absurdly conservative IMO. Ferris Baker Watts put out an update on ATPG on 3/17 where they pegged '06 cash flow at $8.27/share, using $32 oil and $5 gas. Also they project '06 oil production to average 15.6 mbo/d even though ATP is scheduled to have their Gomez field online in late '05, where they are setting a pipeline as we speak with a capacity for 20 mbo/d and they have already hit one well that tested at 13.6 mbo/d and are planning to re-enter a second well there later this year. If the first 2 wells don't max out the pipeline they got 2 more to drill over there. ATP's present oil production is about 2.5 mbo/d.
ATP is very innovative, as shown by their production plan for Gomez. Gomez is out in the deepwater (Mississippi Canyon 711 block), and the lead time to get something like that into production would normally end up being something like 2 years. Instead, they found a semi-submersible drilling rig that nobody wanted any more and are going to convert that into a production facility. Big Dog, I bet you would get a kick outta that. So doing it this way, if everything stays on the current schedule they will have gotten Gomez into production within a year of spending their first $ of cap ex on it, an amazing achievement IMO.
The Weil report has an interesting table comparing the various companies on a stat described as Return on Capital Employed (ROCE). This stat seems to becoming more popular these days, I have not really worked with it before. I should know this (since I'm a CPA) but does anybody know exactly how the stat is calculated? My guess would be EBITDA divided by the average of beginning and ending of (Stockholders' Equity + Long Term Debt). Anybody know for sure if this is right? BTW, KCS has been beating the pants off of its peers on this stat in recent years. |
