Andrew, PZE is my favorite E&P because it is so undervalued (I currently own only PZE and GIFI in the Oil Patch). The Chairman (Pate) is the "genius" that turned down an $84/share offer by UPR in 1997 for Pennzoil (equivalent to $60 for PennzEnergy) because he said it was worth $100/share. However, he did us recent investors a favor because IMO PZE is hugely undervalued!!
PZE's two top operating officers came on board in 1997 - their President, Chesebro, came from Tenneco Energy where he was Chairman and President. Since Chesebro came on board, Pennzoil spun off their Quacker State/Jiffy Lube operations, leaving PZE solely an E&P company. This unlocks value (investors understand a focused company better), stops the Quacker State earnings drain, and improves the balance sheet by reducing debt (which is still high). He also formed partnerships to significantly grew PZE's overseas reserves in oil and gas (Petrobras partnership in Brazil is latest). They now have reserves in Azerbaijian, Egypt, Venezuela, Australia. Chesebro is implementing a cost-cutting program this year and reduced capex by 40% from 1998. Last quarter they had a big loss with many extraordinary charges (e.g., due to restructuring). PZE's price has plummeted from 16 on December 31, 1998 when the Quacker State operations were spun off to around 9. It has since recovered to 10 3/4. Susan Byrne (the brilliant Westwood Capital fund manager) estimates that PZE is worth $39. Michael Price selected PZE as his long-term pick in Worth Magazine's February issue and states that PZE could be $50 to $60 in a few years. With higher oil prices, no Quacker State/Jiffy Lube, and reduced expenses, IMO PZE's earnings should really take off (I analyzed their proforma statements for combined company and estimate that PZE would have earned $3.33/share in 1997 as a stand-alone company). When this occurs, the street will recognize how undervalued it is. |
