FYI-CIBC Oppenheimer report
-- OP: HEC: Positive Reserve Report --
CIBC Oppenheimer (Victor Hughes 713-650-2508) HEC
CIBC Oppenheimer
August 5, 1998
Oil Exploration & Production Harken Energy Corporation
Victor W. Hughes, Jr. (713) 650-2508 Positive Reserve Report
Philip R. Skolnick (713) 650-2153
Investment Conclusion
Harken's mid-year Colombian proved reserve Rating: STRONG BUY
report is indicative of its high potential HEC-AMEX(8/5/98) $3 1/8
Colombian exploration prospects. The 52-week $7 1/2-3
company announced on 8/4 that its net proved Shares Out 123 Million
reserves for Colombia have grown from 8.9 Float 116 Million Shares
million barrels of oil equivalent (MMBOE) at Market Cap $384 Million
year end 1997 to 32.5 MMBOE at July 1, 1998. Div/Yield Nil/Nil
Fiscal Year December
Book Value $1.14 per Share
This large increase is primarily based on 1998E ROE 1.8%
the Catalina #1 and Olivo #1 wells in the LT Debt $39 Million
Bolivar Association Contract Area, one of Preferred Nil
Harken's six Colombian association contract Com Equity $161 Million
areas.
With an additional five wells to drill per
structure, each Bolivar structure has the Earnings per Share Prior Current
potential for net reserves to be 1996 --- $0.00
significantly above 100 MMBOE. There are 1997 --- $0.00
multiple structures. 1998E $0.03 $0.03
As Harken drills and tests additional wells P/E Ratio
in Colombia this year, we expect proved 1996 --- NM
reserves to increase by year-end. 1997 --- NM
1998E NM NM
We view this news positively because it is
indicative of Harken's success in Colombia
to-date.
We continue to rate Harken Strong Buy with a Cash Flow per Share Prior
12-month target price of $9.00 because it Current
has an excellent inventory of high-potential 1996 --- $0.04
prospects in Colombia that could 1997 --- $0.05
significantly increase reserves and it has 1998E $0.10 $0.09
the financial strength to fund its high
potential exploration program. P/CF Ratio
1996 --- 0.0X
As we have previously stated, for Harken to 1997 --- 0.0X
reach our target price of $9.00, significant 1998E 31.3X 34.8X
Colombian exploration success is required.
While all exploration is inherently risky,
Seven Seas' success on the adjacent Emerald Company Description:
Mountain field dramatically demonstrates Harken Energy Corporation is
that Harken owns some very high-potential involved in the exploration,
acreage in Colombia. development, and production of
oil and gas reserves both within
We have revised our 1998 cash flow per share the U.S. and in Colombia.
estimate to reflect the new CIBC Oppenheimer
1998 natural gas price forecast of $2.20/Mcf
(down from $2.35/ Mcf).
Bolivar Area Update
Due to the extremely positive reserve evaluation of the Bolivar area, Harken
plans to deploy two rigs that it has under long-term contract on the Bolivar
area within the next 30 days to accelerate the drilling efforts.
Additionally, Harken has applied for the required construction and
environmental permits for two five-mile pipelines (one for oil and one for
gas) from the Bolivar area. These two pipelines will have an initial capacity
of up to 30 thousand barrels of oil per day (MBOPD) and 150 million cubic feet
of gas per day (MMCFPD), respectively. The crude oil pipeline will be
designed to be expanded up to 150 MBOPD. Subject to the timely receipt of
these required permits, Harken estimates that pipeline production from the
Bolivar area could begin by the first quarter of 1999. We view this news
positively because it is important not only to find oil in Colombia, but also
to bring it to market.
Harken also announced that it has begun production operations by trucking from
the Bolivar contract area wells this week. The company expects production to
reach 5 MBOPD over the next 30-60 days. Our 1998 estimates already reflect
this production increase.
Cambulos Area Update
Harken has mobilized its third drilling rig to the Islero #1 location. The
company expects to spud the well by the week of August 10. This well is very
high potential given that the Cambulos Area borders Seven Seas' Emerald
Mountain project to the south.
Stock Price Weakness
Harken's stock price has been under tremendous downward pressure lately. This
is the result of very poor market conditions and margin calls that continue to
occur below the $4.00 level. Given that this is already a thinly traded
market, as these margin accounts are forced to sell shares of Harken stock,
the price falls due to lack of buyers. We believe this pressure could
continue until the sentiment towards the oil and gas industry turns positive.
Because the fundamentals of the company are very strong and we believe that
oil prices will not stay at these low levels over the next 12 months, this
weakness has created a tremendous buying opportunity.
Our quarterly EPS estimates are shown below.
1 Qtr. 2 Qtr. 3 Qtr. 4 Qtr. Year
1996 Actual $0.00 $0.00 $0.00 $0.00 $0.00
1997 Actual $0.00 $0.00 $0.00 $0.00 $0.00
1998E Prior $0.00A $0.00E $0.01E $0.03E $0.03E
1998E Current $0.00A $0.00E $0.00E $0.02E $0.03E
Our quarterly cash flow per share estimates are shown below.
1 Qtr. 2 Qtr. 3 Qtr. 4 Qtr. Year
1996 Actual $0.00 $0.01 $0.01 $0.01 $0.04
1997 Actual $0.01 $0.01 $0.01 $0.01 $0.05
1998E Prior $0.01A $0.01E $0.02E $0.05E $0.10E
1998E Current $0.01A $0.01E $0.02E $0.05E $0.09E
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