Richard - stak / Startech Energy
I will handle this in two parts. I will touch upon Startech this time around and discuss Westminster within the next 24 hours.
STARTECH ENERGY
BUY $5.90 MAY 1, 1998
Startech Energy stepped up to the table and was one of the first companies to announce a cutback in their planned 1998 expenditure program. Management appears to me as being decisive and well focused on the tasks that lie ahead for the company over the near and longer term. Management as a conservative forecasting record, having exceeded their projected numbers for 5 consecutive years.
I have watched the company for a few years. Over the past two years, I felt the company was progressing very nicely. However, at the same time, I thought shares were selling at a premium price. At this point in time, the premium as been taken out of the share price and I believe this is an opportune time for investment to realize an above average return over the next 12 and 24 month periods.
Back in January, the company announced they were cutting back their planned expenditures for 1998, from $53 mil. to $30 mil. - which is the amount the company expects to realize in cash flow for the year. Factoring the reduced budget, the company still forecasted a 45% increase in both cash flow ($28.5 mil) and production (9600 average bbl's/d) and a 12% increase ($1.50) in cash flow per share.
Estimates were based upon $US 17.75/bbl. In their case, this is not a high number. 50% of expected crude production in 1998 has been locked into at $US 19.60.
Startech now expects to drill a total 105 wells in 1998. Focus is on light oil developmental drilling and long term life natural gas drilling. In addition, the company expects to drill 8 high impact exploration wells. With existing inventory of development drilling prospects, this activity will take them into the year 2000. The company has more than 43 million barrels of equivalent reserves, representing a 9 year proven and 11 year proven + probable reserve life. Reserves consist of light & medium crude and long life natural gas.
The negative element has been their debt load which stood at $82 million which included monies spent to acquire Laurasia Resources back in January. Subsequently, the company has issued 5,000,000 shares @ $6.50/share to raise $32.5 million. Although dilutive in nature, debt has been lowered to a very respectable level and further allows the company to continue to pursue its growth strategy at a rate they desire.
This past Friday, Startech released their 1997 results. The company reinforced their forecast back in January. In addition, these were some of the highlights.
* Revenue increased 60%
* Cash Flow increased 53%
* CFPS increased 9% to $1.34
* Reserves almost doubled, 18.3 mil to 36.0 mil boe's
* Daily Production increased 64%, from 3926 to 6465 boe/d
* April production stood at 9000 boe/d
* Natural Gas production increased to 18 mmcf/d (6X 1996)
Giving effect of the recent financing, my 12 month price target is $9.00. If oil firms at $18.00/bbl by November, I will probably increase my price target to $10.50. The firming of the price in crude will no doubt bring on increased activity between November and April. Come next April, I am expecting the company's shares to begin approaching a premium level of forward 12 month cash flow to share price multiple.
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