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Gold/Mining/Energy : Canadian Oil & Gas Companies -- Ignore unavailable to you. Want to Upgrade?

To: SofaSpud who wrote (6698)	8/11/1999 8:09:00 PM
From: Goldberry	Read Replies (2) \| Respond to of 24905

I also share your concerns. In fact after reviewing Crestar's latest financials this morning I sent a private message to Kerm asking for his input. My concern is that unless there is something that I am missing shares seem to be fully valued at present and I am concerned upside from here may be limited for some time whereas other companies may be better poised for bigger runs over the near term. I specifically am considering selling half my position and one stock that I feel may make a move is Newport which has lagged the increases enjoyed by others. Anyone else have any thoughts.

To: SofaSpud who wrote (6698)	8/15/1999 7:10:00 AM
From: Kerm Yerman	Read Replies (2) \| Respond to of 24905

SofaSpud - Graham/ Crestar Energy "I believe you still follow this company, so I was wondering if you've looked at the Q2 results, and if you have any impressions." Yes-----Shares are still very reasonably priced and Crestar remains undervalued in comparson to peers. "The following things jumped out at me: - Production in Q2 was 76,600 boe/d, vs. 84,500 boe/d in Q1'99, and vs. 90,000 boe/d in Q2'98; - Production was down 15%, and was lower in 1999Q2 than it was for the 1997 average; - The production decline was in part (3,400 boe/d) due to asset dispositions (to reduce debt); most of the assets sold were gas." This is correct. Crestar's Q2/99 production averaged 76,600 Boe/d (46% gas), down from 90,000 Boe/d (46% gas) in Q2/98. Note that, despite its weighting to oil on a total production basis, natural gas accounted for 55% of its Q2/99 revenue. With the sale of 3,400 Boe/d of production and 7.6 MMBoe of established reserves, for proceeds of $63 million, Crestar's total debt is now $571 million. Asset sales, combined with limited spending in the first 6 months of 1999, allowed the company to reduce its debt level by nearly $200 million over the past year. The year-end 1999 debt/cash flow multiple (D/CF) of 2.3x is a vast improvement from 3.4x at year-end 1998. This factor is very important. The debt level had been holding back share performance. As the D/CF multiple is reduced, shares will react more positively. The average multiple for companies similar to CRS is forecasted somewhere in the neighborhood of 2.0x to 2.2x for year ending 1999. There's no reason why Crestar shares shouldn't be selling at 5.0x 1999 CF and with continued improvement, 6.0x 2000 CF another year down the road thereafter. It amazes me that no one took this company out when shares were trading near their lows just a few months back. One more word about the D/CF multiple. Come spring of 2000, I think overall strategy of most companies of this size will be to reduce debt to about 1.5x by the end of the year 2000. "At the same time, the capex focus in 1999 is gas targets. From the results, it is possible to form the impression that CRS started the year scared by their debt levels, and focussed on that at the expense of all else. I applaud their prudence in trying to improve the balance sheet by constraining capex to less than cash flow in light of $500 million plus debt. OTOH, I'm a bit taken back at the size of the decline, and wonder if the $200 million capex program will be enough to get them growing again." Comment regarding how the company entered this year is, in all probability, correct. But, that also was the case with all companies. They spent $50 million in the first half and the $150 million planned expenditures in the second half can do the job to meet the share price projections I have in mind. The company plans to drill 200 wells with 2/3 of them being natural gas. I anticipate they will reactivate oil projects. Further strength in oil prices might bring about increased spending in the fourth quarter. My production targets are 84,000 boe in 1998 and 91,000 boe for year 2000. I'm looking for cash flow in the neighborhood of $4.50 to $4.65 in 1999 and $6.40 to $6.60 in year 2000. That would establish a share price target of between $32.00 and $33.00 by this time next year. I continue to like Crestar as a value play. Year 2000 looms as a critical period for the company. That's the year the groundwork takes place which will reflect the company's ability to grow production and reserves. Personally, I would like to see definite progress in debt reduction to 1.5x by the end of year 2000 with minimum production growth of 10%, split evenly betweem oil and gas, for year 2000. Keep in mind, just one person's opinion.