For your information:
Range Petroleum Corporation
August 5, 1998
Dear Shareholder,
Please find below a recent research report that has a strong "Buy" recommendation on our company.
Should you have any questions or comments, please call me Toll-Free: 1-888-326-4966.
Regards,
Range Petroleum Corporation
"BRUCE NURSE"
Bruce Nurse
Corporate Communications
Dominik Dlouhy
(514) 845-8847
RESEARCH
Michel DeLavergne
Peter Norris
Joseph Walewicz
(514) 845-8111
Oil & Gas Consultant
Alan Ward
(403) 264-2068
Mining Consultant
T.S. Ortslan & Assoc.
(514) 844-8344
SALES & SERVICE
Michael Blum
Peter Dlouhy
C. Ross Gledhill
Robert J. Magtanong
(514) 845-8111
TRADING
Pierre Robidoux
(514) 845-9620
1-800-323-2613
1350 Sherbrooke St. West
Suite 1200
Montreal, Quebec
H3G 1J1
Tel. (514) 845-8111
1-800-465-5616
Fax (514) 845-0200
DLOUHY INVESTMENTS
July 31, 1998
RANGE PETROLEUM CORPORATION
(RAN - VSE $1.45)
Recommendation: BUY
52 Week Price Range: $2.45 - 0.70
12 Month Target Price: $6.39
Target Return: 440%
Shares O/S (June 30, 1998): 19.6 million
Financial Projections
Fiscal years ending September 30
Earnings Cash Flow
per Share (FD) P/E per Share (FD) P/CF
______________________ ____________________
1998e $ na na na na
1999e 0.91 1.8 2.13 0.8
2000e 0.88 1.8 2.98 0.5
Current Market Capitalization: $28.4 million
Long Term Debt: nil
Net Asset Value (September 30, 1999e): $7.29
Current Price/ Est. Net Asset Value: 20%
Major Shareholders: Directors, Officers and Employees 20% FD
Summary and Recommendation
Range Petroleum is a small cap oil and gas company, incorporated in 1987 and listed publicly on the VSE on August 27, 1990.
The present management assumed control in 1996 with the primary objective of building Range into a successful full cycle
exploration and development company, through combining experienced technical staff, motivated through share ownership, with
leading edge exploration and development technology.
Range's reported revenues, cash flow and earnings will be insignificant for the current fiscal year ending September 30,
1998. Based on our model we believe that the company can achieve gross revenues from oil and gas production of
approximately $96 million in fiscal 1999, and cash flow from operations of $60 million. Assigning a multiple of 3 to our
1999 cash flow estimate of $2.13 per fully diluted share we derive a 12 month target price for the shares of $6.39.
Accordingly, we are initiating coverage of Range with a strong BUY recommendation.
The Company
Most small cap Canadian energy companies start up from a "platform" of purchased production and undeveloped land. These
platforms usually comprise shallower, relatively short life reserves in the lower risk, limited potential areas of the
Western Canadian Basin. The obvious advantage to the shareholder is the immediate cash flow generated. Not so obvious are
the problems associated with this approach: questionable reserves, potentially high depletion rates, the whole issue of
buying somebody else's pig in a poke.
Range's strategy from the outset has been to pursue growth in proven reserves and production through full cycle exploration
and development in the deeper more productive carbonate formations found in Canadian geological basins. The company has
assembled a first rate in-house technical team with extensive experience in the interpretation of complex carbonate
geology.
The People
Range's critical exploration function is headed up by Richard Brown, former VP of exploration with Canada's leading natural
gas producer, Amoco Canada Ltd. Rick had 30 years of experience in exploration with Amoco, in a variety of countries and
geological basins. His strength is complemented by the rest of Range's top management team. Craig Steinke, Chairman and
CEO, has a strong financial background and extensive experience in investment banking. Jim O'Byrne, President and COO, is
the Dean of Canadian Landmen, rich in experience in assembling lease portfolios, and negotiating the deals that drive the
growth of a junior oil. Bernie Goruk, VP Production, is another Amoco Canada alumnus with 20 years experience in the
business, responsible for production, drilling and completions.
Top management is backed up by an impressive technical team. Four geologists/geophysicists bring a collective 44 years of
experience in applied carbonate geology to Range. This group gained their experience with blue chip explorers like Amoco
Canada, Pan Canadian, Husky Oil and Suncor. Hands-on experience in lease negotiation and acquisition is supplied by
Michael O'Byrne, Land Manager.
The Plays
"An exploration play consists of a family of prospects and/or discovered pools that share a common history of hydrocarbon
generation, migration, reservoir development, and trap configuration."
- Geological Survey of Canada
The Western Canadian Sedimentary Basin
Sturgeon Lake, Alberta
The Geological Survey estimates that 55% of the remaining conventional light oil reserve potential in Western Canada will
be found in Devonian pools. Two established Devonian reefal carbonate play types offer light oil and associated gas
potential for Range at Sturgeon Lake. The company holds a 35% working interest in 8,632 acres of rights down to the
Devonian. Two large established light oil pools produce from the Devonian Leduc formation (D3): Sturgeon Lake with 31
million barrels of initial recoverable reserves operated by Petro Canada, and Sturgeon Lake South with 285 million barrels,
now operated by Poco Petroleums. Range's initial Leduc (D3) oil prospect, defined by 3D seismic, will be drilled by the
end of the year. The well will be drilled directionally to a vertical depth of 8,500 feet at an estimated gross cost of
$3.5 million to complete and tie-in to Petro Canada's battery. Potential recoverable reserves are estimated at 5 to 18
million gross barrels, with initial average daily production of from 500 to 1,000 barrels of light oil, and .500 to 1 mmcf
of associated natural gas.
Range participated in a 3D seismic shoot this spring with Suncor to delineate Devonian Nisku (D2) prospects on a six
section block. The objective is 3 to 4 light oil pools, with uphole potential in the Devonian Wabamun, Triassic and
Cretaceous formations. D2 pools should average 2 to 3 million barrels of recoverable oil per pool. The first well
operated by Suncor will be spudded shortly. Initial success would be followed by a four well development program spread
over the 1999/2000 fiscal years.
Cranberry, Alberta
Devonian Slave Point "Cranberry type" reefs in Western Canada hold a remaining undiscovered reserve potential of 2.4 tcf of
gas. Range paid 30% of a 3D seismic program shot by Amoco Canada this spring to earn a 25% interest in a 91 square mile
(58,240 gross acres) area at Cranberry in northwestern Alberta. This highly prospective acreage is adjacent to Amoco's
producing Cranberry field which initially contained 413 bcf of recoverable gas.
Range will participate in the first test well this coming winter. Slave Point reefs are prolific: successful wells will
recover 10 to 150 bcf of gas containing up to 45 barrels of liquids per mmcf. Initial average daily production rates will
range between 10 to 25 million cf. Two development wells will follow exploration success in fiscal 2000.
Sundance, Alberta
Range has acquired a 100% working interest in a Nisku (D2) pinnacle reef anomaly in west central Alberta identified by 2D
seismic. The company will shoot a 3D survey over 480 acres this coming winter. An exploration well will be drilled after
data interpretation. Based on performance of analogous adjoining producing pools at Obed and Cecilia this well, if
successful, could recover reserves of anywhere from 20 to 50 bcf.
The foregoing comprise Range's current portfolio of potential company-makers in Western Canada. In addition, the company
holds approximately 27,000 net acres of undeveloped land in other prospective areas of the Western Basin.
The Michigan Basin
Approximately 122 gas pools have been discovered and developed in the Silurian reef play in the southwestern portion of the
Michigan Basin. Although most of these pools are relatively small compared to the deeper, high productivity pools found
west of the Fifth Meridian in the Western Canadian Basin, superior economics and the Play's location in the heart of the
largest energy market in Canada make their development very profitable. Wellhead prices currently average about double
Alberta prices, and lower royalties result in cash netbacks approximately double those in Alberta.
Range currently holds a 100% working interest in over 50,000 acres of freehold leases in the Michigan Basin, primarily in
Lambton County, Ontario, but overlapping into the adjoining state of Michigan. On the basis of the extensive 2D seismic
interpretation and geological mapping done to date the company believes its leases hold 50 to 60 drilling prospects.
Range has completed and is currently interpreting the results of the first of three 3D seismic surveys over 7 of these
prospects. The targets are primarily carbonate pinnacle reefs of Silurian age which can be accurately defined by 3D
seismic. These reefs occur at depths from 1,500 to 2,100 feet, range from 50 to 300 acres in size, and 200 to 300 feet in
thickness. The company expects a 75% success rate on exploration wells drilled on 3D seismic interpretation.
Successful wells will cost about $500,000 completed and tied-in, including land and seismic costs. Initial production
rates will range from 10 to 40 mmcf per well, with recoverable reserves of 1 to 7 bcf. An average well will pay out in
about 8 months, and yield an internal discounted rate of return of over 100%.
The Michigan Basin gas program will absorb about 75% of the company's capital budget in fiscal 1999. The true significance
of this play to investors lies in the free cash flow (ie. cash flow from operations less maintenance capital required to
replace production) of over $20 million it will throw off in fiscal 1999, which Range can deploy in the discovery and
development of reserves elsewhere.
At least 21 depleted Silurian reefs have been converted to gas storage in southwestern Ontario to date. With the growth in
gas consumption for electricity generation expected in Ontario over the next few years, suitable storage reefs will
continue to be highly sought after. Range will have the options of selling or leasing storage as reefs are depleted,
creating an additional revenue stream which has not been factored into our estimates.
Carbonate formations on the company's leases also offer significant potential for discovery and development of light oil
reserves. In fact the first well drilled on 3D seismic interpretation this summer will have a light oil target at about
1,500 feet. The well has the potential to recover 350,000 barrels with an initial production rate of about 125 barrels per
day.
The Outlook
Range will spend approximately $27 million in capital in fiscal 1999 to participate in about 30 wells, all drilled on 3D
seismic interpretation. We estimate that this program exposes investors to an unrisked oil and natural gas reserve
potential at September 30, 1999 of approximately $200 million, or $7.10 per fully diluted share. Next year's capital
program will be financed out of current working capital, an equity issue to be closed before September 1998, and fiscal
1999 cash flow.
Our projections of financial results for fiscal 1999 and 2000, summarized in the accompanying table, have been built from
the bottom up play by play. Current commodity prices have been used without any escalation.
Alan Ward
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