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Strategies & Market Trends : Value Investing

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To: Spekulatius who wrote (42324)	4/19/2011 12:00:57 PM
From: E_K_S	Read Replies (1) of 78661

Re: Bill Barrett Corporation Common (NYSE: BBG ) When researching companies with prospects in the Niobrara region, I looked at acreage under lease, their drilling CAPEX budget for 2011-2012 and the capital & debt levels for each company. My premise was to try to identify those companies with the most aggressive drilling programs (w/ successful JV partners) and that had the necessary financing in place to complete their development wells for 2011-2012. I also screened the companies based on their debt/net income profile (LT debt <= 5x Net Income). BBG seemed to meet most of the criteria especially the debt/net income screen. Many of the others I looked at had no net income and failed my debt/net income screen. I also looked at what it cost to drill a new well and produce an equivalent barrel of oil. I wanted this number to be under $40/BOE but it was difficult to calculate the equivalents for NG. The BOE for NG is not really a good measure for evaluating NG vs Oil. NG is priced at a historically low price and I expect a reversion to the mean value over the next 5 years. I also believe OIL is selling at a $20/barrel premium and is overstated in the conversion. Therefore the resulting net BOE equivalent for NG may be overstated (especially when looking at reserves) when adjusting for $109/barrel crude. The standard BTU conversion is not always that accurate too. Finally, different companies use a slightly different conversion factor when calcualting their BOE equivalents so the resultant measures just make company comparisons that more difficult (both in valuating total BOE reserves and net cost to extract one BOE from a new developed well). I really wanted to focus on oily wells especially for the new wells developed for 2011-2012. BBG's focus is NG. Even the two new exploratory wells planned for their Niobrara acreage in 2011 are NG wells. As a result, I passed on BBG. For the more mature E&P companies, owning reserves that are below the cost of new drilling, growing their reserves over 10% per year and having a low debt/net income profile is valuation criteria that makes for a good long term investment. I am anxious to see if anybody else have discovered such emerging and/or operating companies. Perhaps Marathon Oil Corporation Common NYSE: MRO) or Anadarko Petroleum Corporation (APC) meet this criteria. Both have been quite successful developing properties in the Niobrara area. finance.yahoo.com EKS

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