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

To: Tomas who wrote (71722)	8/26/2000 11:48:19 AM
From: Tomas	Read Replies (2) \| Respond to of 95453

Junior energy stocks look set for takeoff - Higher oil prices, acquisitions forecast The Globe & Mail, Saturday August 26 DAVID PARKINSON, Alberta Bureau Calgary -- Junior oil and gas stocks have been wallflowers for much of the record upward dance on the Toronto Stock Exchange this year, but they look primed to get out on the floor and start jitterbugging. The energy juniors have been laggards even within the larger oil and gas sector, which has only recently caught up with the TSE's rally. A look at 49 well-watched TSE junior oil and gas stocks -- those with market caps between $50-million and $500-million -- shows that the median increase in stock price since the end of 1999 is 25 per cent. The TSE oil and gas index, which is weighted toward large-capitalization stocks, has risen 33 per cent in the same period, while the TSE 300 is up about 34 per cent. "A lot of juniors have had a rough ride of it," said Don Whatley, an analyst at UBS Bunting Warburg Inc. in Toronto. Analysts said the failure of some highly touted juniors such as Merit Energy Ltd., coupled with uncertainty after crude oil prices tumbled below $11 (U.S.) a barrel in late 1998, turned many investors away from small-cap energy stocks and into other speculative plays, such as high techs. But the junior oil and gas stocks might be set to play catch-up with the rest of the market. Expectations of continued high prices for oil and gas, improved balance sheets, and the prospect of more mergers and acquisitions could attract investors to many small-cap energy stocks in the coming months. "There are bargains out there," said Andrew Boland, an analyst at Peters & Co. in Calgary. Mr. Boland said the junior energy stocks are trading at prices of about three times their annual cash flow per share, well below the five to 10 times cash flow typically seen in the group at market peaks. He said debt-to-cash-flow ratios for the juniors are also relatively low historically, and added that oil and gas prices are significantly higher now than the last time the sector peaked in 1997. Still, investing in small, up-and-coming companies can be something of a gamble. Mr. Whatley said a key to making stock picks among this group is to look for strong management. "You've got to have a pretty good idea who's running the store," he said. Mr. Whatley uses that rationale with several of his top picks, including Bonavista Petroleum Ltd. Bonavista is led by Keith MacPhail, who prior to joining the company had helped build Canadian Natural Resources Ltd. into one of the Canadian oil patch's biggest success stories of recent years. "Bonavista is better run than many of the seniors," Mr. Whatley said. "Every year they exceed their targets, and they're a very low-cost operator." Mr. Whatley also likes Storm Energy Inc., Genesis Exploration Ltd., Velvet Exploration Ltd. and Petromet Resources Ltd. He has a "strong buy" recommendation on all five stocks, with expected price increases in the 40- to 50-per-cent range in the next 12 months. Mr. Boland said he leans toward juniors with a strong natural gas component, based on the rosy outlook for natural gas prices. He rates Ionic Energy Inc. and Thunder Energy Inc. as natural-gas-heavy juniors with solid growth prospects. Mr. Boland also likes junior stocks priced significantly below their asset value, such as Benson Petroleum Ltd. Mr. Boland said one thing that has held back the junior oil and gas group is a lack of interest from institutional investors. "One of the big issues I see is liquidity," he said, noting that the institutional buyers don't want to take a large position in a small company and get trapped if things turn bad. "I think that's why we haven't seen the excitement in the smaller caps yet." Still, analysts think the institutional investors will start to come into the junior oil and gas market selectively, looking for companies on the verge of growing to the next level or, more importantly, companies that look like potential takeover targets. "I think there are a lot of companies unofficially out there selling themselves," Mr. Boland said. He said small oil and gas producers with good assets are seeing this as their best option to pass value on to shareholders, at a time when "they're not getting a fair price from the market." globeandmail.com