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Gold/Mining/Energy : Swift Energy (SFY) -- Ignore unavailable to you. Want to Upgrade?

To: PuddleGlum who wrote (760)	4/17/1999 9:03:00 AM
From: Mark	Read Replies (1) \| Respond to of 1602

After a month or so of the oil bulls and bears fighting it out, oil seems to be back in the $16 region. In the similar period, NG prices have also strengthened, but not by as much, presumably due to concerns over inventory levels. Prices for NG have risen from a low of around $1.70 to current levels in the region of $2.10. Had these tracked oil at the ratios of recent history; i.e. 6.5 to 1; then we would expect NG to be in the $2.45 region. We are awaiting SFY's first quarter's figures, which will hopefully be the last of the quarters to be adversely affected by poor market pricing. For the last published figures (Q4 '98), SFY achieved market prices of $2.00 for NG and $11.74 for Oil. We will shortly have the figures for Q1, and it is likely that they will be based on similar prices (perhaps slightly lower). I therefore wouldn't be at all suprised to see numbers below the 19c that they achieved last quarter. However, going forward, things look increasingly optimistic. A simplistic calculation can be made for SFY's profitability based on SFY's last quarter's output being maintained, but being sold at current pricing. (This may or may not be a pessimistic scenario). What is interesting about this calculation is the effect that the Sonat acquisition has. (This has increased the proportion of output based on oil to around 35% of the total). Under the current scenario, where oil prices have strengthened disproportionately, this has an extremely beneficial effect. Should SFY be able to sell their oil at $16, then this would add about $3m to their quarterly profits and would increase quarterly EPS from 19c to 36c. In other words, the rise in oil prices ALONE, could drive SFY's '99 profitability well above the $1 region. I am reasonably optimistic about the prospects for oil pricing, but less clear about the prospects for NG. I am hopeful that these will strengthen, and that at some point we will again see the 6.5 (or lower) ratio restored. Should NG rise well above the $2 that SFY achieved in the last quarter then this will also have a beneficial effect on profitability. One thing that does concern me however is how much SFY have reined-in their drilling expenditure. They'll probably need to increase this spending significantly if they want to grow their reserves and output at their previous rates. This will cost a lot. Should NG pricing continue to strengthen, I am hopeful that SFY will be generating enough cash to provide good profitability AND increase their drilling spending. The basis for this will be the strong platform accorded by the high oil production, and increasing market prices. On this basis, the Sonat deal could turn out to have been a an extremely valuable move. Within this context it is probable that we should begin to see some upwards earnings revisions. I am presently hopeful that SFY will achieve >$1 this year, and it would be encouraging to see this reflected in analyst estimates. I also suspect that these might yet take a week or two to appear, given that we are close to the next quarterly report, and that the institutions will need to load up on the stock first (!) Mark p.s. RTQ and I are in agreement over the relative risks of techs vs. O&G, so it was interesting to read that Fidelity have reduced their tech exposure over the last few months....... dailynews.yahoo.com