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Politics : High Tolerance Plasticity -- Ignore unavailable to you. Want to Upgrade?

To: jim_p who wrote (2274)	3/22/2001 6:06:04 PM
From: excardog	Respond to of 23153

jim Turned off the noise today. Watched a little golf. Flipped to see the market make a comeback looks exciting. Don't know if you saw this but I thought it was interesting. Liked the part about BR being able to buy back all its shares and have 4 billion left to play with: Thursday March 22, 4:40 pm Eastern Time Press Release SOURCE: John S. Herold, Inc. John S. Herold/Stern Stewart Study Urges Hedging & Stock Buybacks NORWALK, Conn., March 22 /PRNewswire/ -- North American E&P companies faced with the dilemma of undervalued equities relative to the future value of reserves should consider hedging the value of their proved developed producing (PDP) reserves and returning the cash to shareholders via stock buybacks, according to a research study jointly issued by John S. Herold, Inc. and Stern Stewart & Co. The study reached this dramatic conclusion after determining that the present value of the PDP reserves of some E&P companies was as much as 40% greater than their current enterprise value. According to Herold's Arthur L. Smith, chairman and CEO of the independent energy research company, the purpose of the study was to explore ways in which the oil industry could enhance its credibility with the investment community. Smith said, ``Despite two years of strong hydrocarbon wellhead prices, the S&P E&P Index has continued to lag the two main commodities, oil and natural gas. The primary reason is that investors, aware that the industry has a history of wasting free cash flows at the top of the commodity price cycle, heavily discount the present value of future cash flows in valuing E&P companies.'' John McCormack of Stern Stewart explained the logical solution was for companies to commit to paying out today's high future cash flows to shareholders now. Stern Stewart and Herold postulated that oil and gas managers could execute a three-cornered strategy: Price hedge volumes from proved developed producing reserves Borrow against the present value of those certain future cash flows Return that cash in the most tax efficient manner to their shareholders by repurchasing shares To test the validity of this strategy, Herold and Stern Stewart calculated the value of reserves that were ``hedgible'' and ``monetizable.'' These quantities, which the study authors called ``hard value layers'' (HVL), are generally PDP reserves from politically stable areas such as North America. They then compared HVL to Enterprise Value (EV), adjusted by removing non-North American reserves. Smith reports, ``The results were surprising. Three companies, Burlington Resources, Cabot Oil & Gas, and Berry Petroleum, had HVL levels 40% greater than their EV. In the case of Burlington Resources, the company could theoretically hedge production, repurchase all of its stock and retire all debt, and still have $4 billion to develop other assets.'' The study cautions that, as with any valuation approach, implementation could encounter pitfalls. But the authors conclude that the credibility of the industry as a whole could be greatly increased if companies initiated at least a partial hedging and stock repurchase program.