Strictly: Drilling and oil-field services Message Board

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Gold/Mining/Energy : Strictly: Drilling and oil-field services

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To: The Ox who wrote (44075)	5/5/1999 6:52:00 PM
From: upanddown	Read Replies (4) of 95453

Michael Wanted to get your view (and anyone else) on this.. Lets say that NG may face a supply squeeze later this year and that is likely to result in much higher prices and margins. It may be caused by exploration falloff, rapid depletion, hot summer, cold winter, whatever. Industry people like Doug Fant have contributed here. So the question is how do you pick winners among the NG-concentrated E&P stocks. My slant is that the P is much more important than the E. The companies with solid production and solid prospects coming onstream are the ones who should benefit most from higher NG prices. The mostly exploration guys may rush off to find some gas but that is kind of a crapshoot. Even if they make some nice discoveries, any NG price spike may be long gone by the time they come onstream. So how do you find the ones with the best RELATIVE value ? One factor that I think should be important is the price/sales ratio. Production leads to revenues and margins and should be an indicator of market valuation since everybody gets similar prices for production. I was expecting to see fairly similar PSR across the group but actually found wildly different values from .78 annual sales for PZE to 12.38 annual sales for EVER with most in the 2-5x annual sales range. There are a lot of factors that would justify premiums for one over another but the level of premium seems out of line. I mean 4-5x sales for cyclical commodity companies ? Some of these outfits are looking a little overpriced. Lets look at two, APA and PZE. I know you like the APx twins....not trying to pick on your stuff. <ggg>. APA production is about 20% higher than PZE. Last Q revenues was about 30% higher for APA due to higher average prices for APA. Both have NG concentration. Both lost money last year. APA has less debt but the high PZE debt is mitigated by 7.1M shares of CHV that secures some debenture debt. APA may have better alliances and prospects. APA had a big depreciation write-off in the first quarter. I would think at the outside that APA might deserve twice the PZE valuation but APA actually has 5x the PZE valuation. The only other one I found selling for less than annual sales was PETD (.81) and I am really looking hard at that one since it has cash equal to 50% of share price. Do you think looking at production/revenues (among many other factors) is a valid approach for finding the best values among NG plays ? John

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