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

To: chowder who wrote (4782)	5/20/2001 10:48:26 PM
From: BCherry168	Read Replies (1) \| Respond to of 23153

Dabum, are any of those oil and gas stocks? I suspect not. They are still cycling up, it looks like to me.

To: chowder who wrote (4782)	5/21/2001 1:15:51 AM
From: jim_p	Read Replies (3) \| Respond to of 23153

dabum, If you want a good short, KWK is about as good as it gets. 1. KWK's leverage is 88% as of 3/31/01 2. $53MM of their debt is at a fixed rate of 14.75% 3. 40% of their production is hedged at $2.48 per Mcf until 2005. 4. As a result of the bad hedges, the company recorded a pre tax charge of $93.4MM ($60.3 after tax) in Q1 of 2001. 5. The company is selling at 8 times last years record cash flow, which is a 178% premium to APA and other low leveraged growing companies. Out of 66 exploration companies, only ESNJ, EEE, PQUE, BRR and PENG are selling at a higher multiple of last years cash flow. 6. The company has shown growth rates as high as 84% over the last 4 quarters due to a large acquisition last March. Actual growth on a sequential basis is ZERO despite drilling 57 wells in 2000 and spending $28MM in cap-x for drilling and over $23MM in acquisitions. Production in 2Q 2000 was 9,978 MMcfe, in Q1 of 2001 production was 9,977. ZERO growth. 7. $181.3MM of the companies bank debt is at a floating rate which was also hedged right before rates dropped, resulting in a $2.95MM charge in 1Q 2001. 8. The company paid $.52 per Mcfe for about 1/2 of it's reserves in March of 2000. If the company could liquidate today at 50% more than it paid one year ago (and after a years production) for $.75 per Mcfe the common stock would be worth ZERO. 9. Properties are very leveraged to the price of NG since they have very high operating cost. These do very well when prices are high, but do very poorly when price fall. 10. Fixed operating costs are rising much faster than production. a. Production costs per Mcfe from 2Q 2000 to 1Q 2001: $1.00, $1.05, $1.29, $1.37 b. G & A costs per Mcfe from 2Q 2000 to 1Q 2001: $.17, $.20, $.23, $.26 c. Interest costs per Mcfe from 2Q 2000 to 1Q 2001: $.68, $.72, $.75, $.65 d. Total fixed costs before Cap-X and debt service: $1.85, $1.97, $2.27, $2.28. If supplies continue to build and NG falls back to it's historical average price of $2.00 per Mcf, KWK will not survive. 11. Cap-X for this years is up 100% to $46MM, which will make this look a lot worse as the year goes on. This one of the best shorts I've seen since 1997, and it is also one of my largest shorts. If you're interested in a copy of a detailed evaluation I did over the weekend, send me a PM with your email address, and I'll forward you the evaluation for 2Q, 3Q, 4Q 2000 and 1Q 2001. Good luck to all, Jim