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Gold/Mining/Energy : Canadian Oil & Gas Companies

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To: mike smith who wrote (4913)	5/28/1998 1:12:00 AM
From: Richard Saunders	Read Replies (2) of 24921

Mike/ reserve evaluations. Your post back in April is timely with the recent swack of annuals being delivered by the postal folks. You mentioned some of the reputations that some of the various engineering firms seem to have, some being more "aggressive" than others, etc...... exchange2000.com Appreciated the reminder and here's an good example at what you were indicating - Seventh Energy Ltd. (SEV.A & .B on tse). This company's annual report shows some "interesting" (imo) stuff...... the company started '97 with minimal production and approx. $7.4mil in funds of which something like $5.5mil needed to be spent to fulfill flow-thru obligations. SPending (and then some) happened.......... At the end of the year the company was left with approx. 12 years of primarily oil reserves and an exit rate production of approx. 600 boepd. Bottomline line is that the company was "too good" at spending and is currently loaded with major debt constraint. A glance at the reserves proves what you were previously indicating - the reserve valuation was conducted in a report dated March 10 and was effective for January 1, 1998. For comparisons the West Texas Intermediate benchmark on January 09, 1998 was $16.65us and on March 13, 1998 it was $14.19us. Back to the Sproule Report - future cash flows are listed with 3 discount rates, 0%, 10% and 15%. Reading a bit closer it indicates that probable oil reserves and volumes have not been reduced at all for risk. Usually it's common for probable reserves to be sliced back 50%. Also, the crude oil WTI ($US/Bbl) pricing assumptions for 1998 are shown as $20.52us As some of the recent posts have indicated it's quite probable the '98 number will be considerably less. Too many words just to say thanks for previously high-lighting possible considerations when considering reserve evaluations and proof that a net asset value number should possibly be viewed a bit closer to really see what (possibly if?) value is really in place. disclaimer: the Seventh Energy annual report has been fired into the back part of the filing cabinet............

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