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Gold/Mining/Energy : Canadian Oil & Gas Companies -- Ignore unavailable to you. Want to Upgrade?

To: Craig C who wrote (4459)	1/10/1998 7:48:00 PM
From: Kerm Yerman	Read Replies (2) \| Respond to of 24927

Craig / Northrock Resources & Paragon Petroleum Here is one analyst's view. Northrock Resources has made a bid to acquire Paragon Resources, with an offer of cash and stock. The $134 million offer is friendly, and offers Paragon shareholders either $4.10 cash or 0.19 Northrock shares, with maximums of $67 million cash or 4.35 million Northrock shares. With assumed debt, the total cost of the take-over is $160 million. On a proven + half probable reserve basis, Northrock is estimating that it is paying in the range of $6.00 - 7.00/boe. Without year-end reserve data, we cannot verify this estimate. Strategically, the acquisition further builds upon Northrock's aggressive strategy to pursue liquids rich gas prospects in west central Alberta. The deal will provide Northrock with 1998 average production of 12,500 bbls/d of liquids and 165 mmcf/d of natural gas. We estimate this will result in CFPS of $3.65. We also estimate that the acquisition will increase Northrock's debt substantially, with an estimated year-end 1998 level of $344 million, or 3.4x estimated 1998 cash flow. While the acquisition will significantly aid Northrock in its west central Alberta strategy, it will also increase the company's debt leverage to the highest of its peer group. The stock price is currently trading at 5.9x 1998 CFPS, again well above its peer group. (based upon share price of $21.50) A good strategic deal, but a weak balance sheet. We continue to recommend a hold. Craig, I agree with the assessment. I don't like the debt structure at this point in time. I would want to learn more from the company as to how they will handle the debt. Northrock is a good operator and I like the deal they made with Gulf Canada Resources.