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Gold/Mining/Energy : Strictly: Oil and Gas Exploration Companies -- Ignore unavailable to you. Want to Upgrade?

To: r.edwards who wrote (189)	5/15/1999 12:06:00 PM
From: Robert T. Quasius	Read Replies (3) \| Respond to of 318

Check out Miller Exploration. This stock was hammered after some bad news recently, but I believe is grossly oversold. It closed yesterday at $2-5/16, but came out as an IPO in February 1998 at $8/share. The stock is worth more than when it became public, yet is selling for 75% less. I've just finished reviewing the FY199 Q1 earnings release, and MEXP 1998 annual report and 10-K, and am solidly convinced that this stock is grossly undervalued. After doing some number crunching, here is some data showing the fundamental attractiveness of this stock. First, book value at the end of 1998 was $1.98. However, if you consider that the write down of the oil and gas properties was based upon the low commodity prices at 12/31/98, the book value now is much higher. The ceiling test write down was $35,085, or $2.80/share, and was based upon natural gas at $1.78. I believe this stock is worth more like $5 in book value after adjusting asset values upwards. Most of MEXP's reserves are natural gas. MEXP's huge write-down triggered the current liquidity crisis, where the bank reduced the line of credit due to reduced collateral valuation at 12/31/98. However, asset sales have already paid down $4.1 Million of the $10 million the bank is looking for by October. With higher commodity prices (and therefore asset value), MEXP will likely secure a new line of credit to overcome this situation. However, even without a new loan some more asset sales and strong cash flow should enable MEXP to meet the new tightened credit requirements. The Miller family, who own nearly half of MEXP, has also stepped in and offered to buy some assets for $6 million, hold, and make available for resale back to the company later this year. In any event, the required liquidity to continue exploration is in place, though at a slower pace. Cash flow for E&P companies is king, and for 1998 the cash flow per share from operations was a very healthy positive $1.51. At the current $2-5/16, the price/cash flow ratio is only 1.53, dirt cheap for an E&P stock with high growth potential. 1999 Q1 cash flow per share was $0.24, but remember that for most of Q1 commodity prices were still very depressed. With higher commodity prices this year, we can expect much higher cash flow. I would expect cash flow to be substantially higher than the $1.51 in 1998, given higher production levels and higher commodity pricing. MEXP has already hedged 10 mmcfd of natural gas production for six months of 1999 at $2.24, as compared to the $2.05 average realized in 1998. The average crude price realized in 1998 was only $10.69, while this year prices have recently been in the $18-19 range. Although this may drop back to the $15 range, this is still a significant improvement. I foresee more exploration successes. MEXP has shift almost exclusively to 3-D seismic for salt dome exploration. Most of last year's dry holes were from using 2-D seismic around sale domes. I foresee MEXP drilling fewer exploratory wells this year, but focusing on the most likely prospects, and almost exclusively based upon 3-D seismic data.