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Gold/Mining/Energy : Oil & Gas Exploration & Production Co.'s -- Ignore unavailable to you. Want to Upgrade?

To: Dale Baker who wrote (30)	1/23/2003 11:22:52 PM
From: Ed Ajootian	Read Replies (2) \| Respond to of 112

Dale, An excellent question and one which I had asked myself and answered with some rough numbers in my head. When I did that I came to the conclusion that EPL was being signficantly discounted vs. REM but now that I crunched the numbers it looks a lot closer. These companies are very similar. EPL limits its operations to the Gulf offshore, but REM also does some onshore exploration. There is one qualitative difference at the moment, which is that REM has announced that massive discovery at Tatum Dome, for which everyone is waiting on the likely imminent dissemination of more info. But putting that aside, here is how they stack up. For production figures for both I'm using figures from analyst reports by CIBC, which happened to issue updates on both companies on 1/16, so both are reasonably fresh. EPL will produce 48 BCFE in '03 vs. REM's 36 BCFE. Cash flow (using $4.25 gas and $27 oil) for EPL will be $125M and REM will be $124 M. EBITDA for EPL is $133 M to REM's $126 M. (Obviously REM is doing a better job at controlling costs!). Since EPL has more debt than REM and also has preferred stock, it would seem that the only way to compare the two fairly would be as a ratio of Total Enterprise Value (i.e., market cap plus debt plus preferred value) divided by EBITDA. Under these measures, EPL is trading at a ratio of 3.4, whereas REM is at 4.1. Interestingly, if you take away the $2/share that REM's stock has gone up since they announced Tatum Dome you get a ratio of 3.5. So this interesting exercise has me now wondering whether EPL is as undervalued as I thought it was. In any event I'm holding until 2/6 so I can see what their proved reserves ended up to be.