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Gold/Mining/Energy : Strictly: Oil and Gas Exploration Companies -- Ignore unavailable to you. Want to Upgrade?

To: Gary105 who wrote (216)	6/9/1999 9:08:00 AM
From: Robert T. Quasius	Respond to of 318

Book value is strictly an accounting term, which can be misleading when you look at that for oil and gas firms. The best methodology I've seen for evaluating the intrinsic value of oil and gas firm is to calculate the risk adjusted break-up value, where you used proved and unproved reserves (unproved being risk adjusted), then subtract out the debt. I also look very closely at cash flow, liquidity, lines of credit being tapped out, etc. A company may post huge losses, like AXAS did, but mostly due to ceiling test write-downs. These write-downs really don't affect reserves in the ground, unless it is because of damaged oil fields, etc. For many oil and gas companies in 1998, there were huge write-downs because oil and gas prices were extremely low at 12/31/98, and furthermore some fields became uneconomical to produce and the reserves disappeared from the books. Cash flow from operations is really a better gauge than earnings for an oil and gas company. AXAS managed to maintain positive cash flow throughout 1998, except that the last quarter was basically break even on cash flow. I've seen figures for AXAS of around $14 for risk adjusted break-up value. AXAS has HUGE potential upside if any of their Canadian prospects hit oil or gas. Another consideration is that if AXAS merged with another firm with deeper pockets, access to credit, etc., shareholder value would be greatly enhanced, as their cash applied to AXAS's prospects would be a winning combination.

To: Gary105 who wrote (216)	6/9/1999 11:22:00 PM
From: Robert T. Quasius	Respond to of 318

After reading your earlier post about negative book value, I went back through my AXAS file and found a few interesting pieces of information. I am still convinced that AXAS will be a grand slam. First, according to the CIBC Oppenheimer analyst report dated January 5, 1999, AXAS has a fair market value of $16.64/share. This is the sum of the proved reserves (New Cache included), gas processing facilities, undeveloped acreage, less debt. A similar report from ING Barings dated 12/11/98 assigns a net asset value of $10/share, including probable reserves. CIBC Oppenheimer estimated AXAS's probable reserves at $15.05/share, but didn't include probable reserve value in calculating fair market value. Their target price was reiterated at $15/share, quite a sizeable premium over today's sub $2 price. ING Baring's target is $10/share. The other item of note is that AXAS's Q1 cash flow from operations came in at $7,776M, versus $4,370 from 1998 Q1. In other words, cash flow actually improved, though prices were still depressed for most of Q1. Cash at end of the quarter was $14,725, or about $2.30/share, more than today's closing price of the stock! Last, insiders have been big buyers of this stock, and much of the buying was at much higher prices than the sub $2 range we're seeing today.