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To: The Ox who wrote (65605)	5/2/2000 2:11:00 PM
From: Big Dog	Read Replies (1) \| Respond to of 95453

Dain Rauscher on gas (apologies for the formatting): DRW INCREASES U.S. NATURAL GAS PRICE FORECAST; TOP GAS-ORIENTED E&P PICKS We are changing DRW's spot Henry Hub natural gas price forecast ($ per Million Btu) as follows: \|\| \|\|* Year 2000E: to $2.85 from $2.70 \|\|* Year 2001E: to $2.80 from $2.70 \|\|* 1Q00A: actual of $2.63 \|\|* 2Q00E: increased to $2.95 from $2.70 \|\|* 3Q00E: increased to $2.90 from $2.70 \|\|* 4Q00E: increased to $2.90 from $2.80 \|\| \|\|Our new gas price forecast of $2.85/$2.80 for the two-year period 2000- 2001, if confirmed in actuality, would represent the strongest two consecutive years for gas prices ever. The best single year historically was $2.76 in 1996, and the second best single year was $2.53 in 1997. The key reason for this stronger forecast is that domestic gas production, even with the help of stronger imports, appears unable to keep pace with weather- weakened demand. \|\| \|\| Based on a sample of 25 individual company first-quarter earnings reports, representing about 40% of total U.S. gas production, first-quarter production was down by 3.5% from year-ago levels. This helps to explain why, at the end of a record warm winter, AGA gas inventory is 1,027 Bcf, which is approximately the five-year seasonal norm, and 347 Bcf less than last year. Based on the observed first-quarter U.S. gas production and our forecast of second-quarter supply and demand, we estimate that AGA storage is likely to end the second quarter at approximately 1,600 BCF. This would be 200 BCF less than the seasonal norm. The futures market appears to be already anticipating such an outcome. \|\| \|\|We see the current supply/demand tightness extending through 2001 and perhaps longer. The central problem is that the traditional 'go to' gas supply region, the shelf of the Gulf of Mexico, has become very mature and is now facing gradual production decline. Its role is expected to gradually be replaced with other North American supply provinces, but total supply is likely to flatten in the transition period (while demand growth is expected to continue to grow--demand has been flat due to three near-record mild winters in a row).Stock Opinion ((Potential for continued strength in gas prices offers an excellent buying opportunity for the gas-oriented E&P's.)) \|\| \|\|The top E&P picks are as follows: \|\| \|\|Stephen Smith: ((EOG Resources)) (NYSE: EOG; Buy-Aggressive; $25.88). We increased our 12-month target to $38 from $35. This is based on a historical enterprise CFPS multiple of 7.5, times 2001E enterprise CFPS, less projected net debt per share. \|\| \|\|John Myers: ((Cross Timbers)) (NYSE: XTO; Strong Buy-Aggressive; $15.88). Our 12-month price target is $24 based on a 7x multiple of 2000 EBDIT (historic average is 9x) less projected net debt. \|\| \|\|Ray Deacon: ((Burlington Resources)) (NYSE: BR; Buy-Aggressive; $39.50). Our 12-month price target is $47 based on a 6.7x multiple of 2000 EBITDA (historical average is 8.1x) less a projected 2000 year end net debt of $2.2 billion.