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

To: oilfinder who wrote (5463)	10/7/1998 5:17:00 AM
From: Kerm Yerman	Respond to of 24927

Mike / Founders Energy Mike, I'm not all that close to Founder's current activity. It's one of those companies that was formed by a merger of smaller concerns a couple years ago and they did not impress me with their individual progress at the time. However, on paper, operations had progressed well thru 1997. Founders is heavily leveraged to oil production (est 90%) and product mix is medium to light oil. I estimate net asset value to be in the $0.90 neighborhood. This does not include 1998 factors, except for shares outstanding. Daily production was forecast to average 3,000 boed in 1998, based on internally generated growth and strategic acquisitions. I don't think they will meet their production objectives. The main factor, as to how close they come to their target, will depend on third quarter drilling results. I have no idea as to that status, but that info would indicate to me how the near term shapes up for FDE. The company was not too active in the 2nd quarter but was gearing up for a very active coming quarter. Founders originally forecasted cash flow of $11.5 million or $0.35 per share for 1998, based on an average WTI oil price of $17.50 U.S. The pricing assumption is high and I would reduce the forecast to $0.25 to more accurately reflect lower pricing. Also, my guess is that you will have to (at least) reduce cash flow by another $0.06 to reflect being short on production estimates. That amounts to a total $0.19 cash flow per share. The original (3/30/98) capital expenditure budget was $18.5 million which included $9.3 million for drilling, $4.5 million for land, $3.0 million for seismic and the balance for expanding and improving facilities. I don't know if they have adjusted this planning due to the current market environment. I think current share value of $0.74 may have further downside potential. Although selling at a discount to my net asset value estimate of $0.90, "they appear to be in declining state" and I don't have a feel as to how 1998 activity and situations will effect this number. The same applies to the cash flow ratio, currently 4.0X my 1998 estimate. I don't think debt presents a problem at this time. The key to determining future prospects of the company will be third quarter drilling results. They need to put on substantial production by the end of the quarter to sustain production increases to support their near term objectives. Without a very successful quarter, they may be headed towards a crisis in operations due to financial restraints.