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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: Think4Yourself who wrote (50318)	9/3/1999 12:09:00 AM
From: Ed Ajootian	Respond to of 95453

The Power of the Press But do they know what they are talking about? Or is this a plant by a firm who is shorting the stock? An Article in the Financial Post of Canada nationalpost.com s2Ònadianbusiness&f0827/64221.html titled ?Canadian 88 tries to halt bleeding by cutting costs; Share price has plunged.? by Ian McKinnon is cited by the company as the cause of its recent free fall in the share price. In the last few days, EEE.T has fallen from the C$3.75 to C$4.50 range to a low as $2.95 bottom and is now trading around C$3.30. The story states: ?The Calgary intermediate producer wants to reduce spending by $7-million, with $2-million coming from administrative costs and $5-million from field expenses. But at least one analyst said Canadian 88 needs to do more to stop the erosion of its stock price, which has dropped more than 35% in the past three months while shares of most rivals have risen. David Stenason, a Montreal oil and gas analyst with Scotia Capital Markets, said the company?s daily gas production dropped in the second quarter, to 103.5 million cubic feet, from 119.5 in the first three months. This means Canadian 88 is not profiting from the long-awaited bull market for gas. ?It is time to deliver on the production side. Rather than delivering production, they?re actually shrinking,? he said. A month-long shutdown of Shell Canada Ltd.?s Waterton plant, which processes Canadian 88?s gas from the area, contributed to missed production targets.? Scotia Capital has a ?sell? recommendation on the company. ?Mr. Stenason said Canadian 88 might be able to work out of its current difficulties. ?They could turn it around but it?s highly risky. They?ll have to leverage up the balance sheet and put the money into development.? I fail to understand this statement because the Financial Post article goes on to state that cash flow rose 59% to $8.6-million (8½) in the quarter. I fault the author of the article for not pointing this contradiction out more strongly. Canadian 88 responded by stating ?that the share price has now got to a level of less than 50 percent of Net Asset Value (NAV) as recently estimated by the Company and such large independent analytical firms as J.S. Herold, Inc. and other bona fide analysts covering the Company. There is no bleeding at Canadian 88, simple cost reductions including 10 percent voluntary pay cuts by senior management and operating staff and improvement in field operating efficiency are designed to increase cash flow and corresponding earnings by upwards of 10 cents/share. They should not be construed as a reflection of the Company?s financial ability which is very strong.? Company highlights: biz.yahoo.com (1) Average Daily Production has increased 32 percent in the first half to 140.1 mmcfe/d compared to 106.4 mmcfe/d in 1998. (2) Revenue increased to a record level of $53.2 million in 1999 as compared to $36.3 million in the same period during 1998. (3) Cash flow increased by 39 percent during the period to $19.3 million from $13.9 million during the same period. (4) In June, Canadian 88 expanded its production loan facility from $205 million to $280.5 million with a borrowing base attributed to its reserves of $300 million under the loan agreement. Debt at the end of the second quarter of 1999 was approximately $225 million and has remained relatively unchanged to date. On a going forward basis, with estimated year end 1999 debt of $250 million, debt to cash flow ratio is approximately 2.5 times. Accordingly, Canadian 88 has the flexibility to accomplish its capital spending objectives and undertake many attractive opportunities available to the Company. (5) Furthermore, EEE doubled its proven producing reserves in 1998 and during the last year has increased its undeveloped land position by approximately 35 percent. (6) In addition, the Company?s exploration success was recognized by the recent Peter?s & Co. F&D study dated July 1999 which placed Canadian 88 2nd and 5th overall in Canada in terms of 5 and 3 year Proven F&D rankings based on our 10 to 1 mcfe F&D cost of $0.51 and $0.50 (versus the industry average of $0.77 and $0.75 respectively). The Company said ?the second factor which may be affecting the Company?s share price is a report that is apparently being circulated by two former stockbrokers claiming to have independently evaluated the Company. Proper analysis of the Company could not however be conducted without detailed information that would have to be provided by Canadian 88. I checked Bloomberg and found ten analysts who follow EEE: one rank EEE as a strong buy, five rank EEE as a buy, two rank the company as a hold , one as an under perform and the last one ranks EEE as a sell. Today, the company announced dividend of shares in Prize Energy Inc biz.yahoo.com. Based on the current outstanding shares of Canadian 88, one share of Prize (PLZ.CA is valued at C$0.35 per share) will be distributed for each 5.1 shares held of Canadian 88. So, who?s correct? Some analysts have a strong buy while some are selling. I believe that focusing on quarter by quarter cash flow is an incorrect way to evaluate an O&G company. Even using that approach, Canadian 88 looks OK. Yes second quarter numbers were down, but spring is traditionally the slowest quarter for natural gas companies. The weather turns warmer (after an already unusually mild winter) and the gas plant being down for a month took another 7 Bcf from sales. Therefore, these numbers look OK to me. Evaluations based on proven reserves less debt plus cash is my preferred method of evaluation and is close to the methods used by J.S. Herold, Inc. This third party evaluation indicates Canadian 88 is trading well below it current value. OK, the Canadian brokerage industry hates the CEO of EEE.T, maybe with good reason from past deeds, but is that a reason to HYPE the public, letting others make money at their expense; first by shorting the stock and then by riding the bounce back? This is not a buy or sell recommendation. I simply want to point out what I believe are brokerage houses acting not in the best interest of their clients. *********************************************************** This is from today's PetroInvest Newsletter by Steven King. I bought a small amount of EEE today, before I saw this. As soon as nat. gas prices settle down I may consider adding to this position. Would appreciate any comments.