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Gold/Mining/Energy : Canadian Oil & Gas Companies

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To: Syncrude who wrote (4911)	4/7/1998 10:54:00 PM
From: Kerm Yerman	Read Replies (2) of 24921

Pat / Asset Evaluation Interesting topic. Hope others jump into subject conversation. I'll dig into the subject and give you some sort of direct opinion. Understand that is just what we're looking at - individual evaluation parameters. All should vary to a small degree. Using a 10-1 conversion at this time is still okay. But I suspect the standard multiple to go lower in 1 to 2 years. This is a subject I covered somewhere over a 1-1/2 year's ago when I was attempting to illustrate why investment in natural gas companies would provide an automatic return in two years, even for companies remaining stagnant in NG production. The basis for the comment was the narrowing of the difference in prices realized in Canada vs U.S. At the time the differential was about $1.20 and with added pipeline capacity, most thought (including me) it would narrow to about $0.60 --- which was a 37-1/2% improvement in prices realized at the time. Anyways, the standard conversion factor in the U.S. is 6 to 1. I would guess the multiple will be adjusted in Canada to 8 to 1 in two years. Actually, to be precise, probably 8-1/4 to 1 is more appropriate. Using a price of $2.20 for NG, the conversion to oil would result in a price of $18.15. That's realistic to me. Another factor one must consider is the grade differential in oil. One should also have a number in their tables to reflect the average of (example) $ per barrel of heavy oil. Perhaps the same applies to extreme presence of sour natural gas. In the article you are referencing, was there any mention related to average life of reserves? In fact, let me know the source of the data you are using. The $60.00/acre price is appropriate. Will dig into this further and get back to you. In the meantime, I hope others will jump on this subject. One last personal observation. When using reserve numbers presented by companies, it is really important to know who provided the valuation. Certain firm's are known to be conservative in their estimates of reserves, and some go to the opposite end in their estimates. Beware of those companies who use in house estimates or have an individual consultant do the estimates. Kerm

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