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Gold/Mining/Energy : Canadian Oil & Gas Companies
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To: Crocodile who wrote (5513)10/23/1998 12:19:00 PM
From: Kerm Yerman  Read Replies (1) of 24892
 
All / Probe Exploration

In answering my e-mail, I touched upon an inquiry regarding Probe Exploration. I thought I would go on record with my reply. My response was to comments regarding cash flow multiples.

This comment was made, "I once heard a knowledgeable investor say that he never invested in small oil & gas play over valued over three times their cf/s."

My comments

I don't quite agree with your friend on the cash flow multiple mentioned.

If you are talking about a small company who is only exploiting for oil and gas, the advice is pretty sound.

However, a very active oil and gas explorer, with prime acreage and strong annual growth rates, would normally command a minimum of 6X forward 12 month cash flow during a period of average oil pricing - in the neighborhood of $18.00/bbl.

My cash flow projection for Probe Exploration in 1999 is $0.90. I am also factoring an average oil price of $17.00 for 1999. I am applying a cash flow multiple of 5.25X because the average price of oil will be under $18.00.

Using these factors, my 12-month projected share price for Probe Exploration is $4.75 - and I consider this number to be very reasonable. Based upon yesterday's closing price, that would amount to over a 100% gain.

Keep in mind - just one person's opinion - this time it was the Tinman's.
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