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

To: Richard Saunders who wrote (6360)	4/30/1999 9:42:00 AM
From: Richard Saunders	Read Replies (2) \| Respond to of 24892

correction: incorrect detail posted re: last blurb about SWN, southward. The $1.5mil write-down occurred in fiscal '97 NOT in fiscal '98 as I indicated. "As at December 31, 1998, the ceiling test computation revealed that no write-down was required." from p.12 of '98 annual. It's also indicated in the '98 annual that the co. has an estimated $13.5mil of tax pools. ........ details, details, details,......

To: Richard Saunders who wrote (6360)	5/1/1999 8:27:00 PM
From: mike smith	Read Replies (1) \| Respond to of 24892

Richard, I also have a previous history owning Southward shares but I got out a couple of years ago when I started noticing how wildly optimistic they were in their forecasts (which they never seemed close to attaining) and the fact that the president at the time had his son as the COO even though he had little or no expertise in this area. The Company now has a new president in Mark Janisch, who has a lot of senior management experience with other oil and gas companies (and whose brother is a top research guy with Nesbitt) and an extremely strong board. My broker told me recently that Mr. Janisch was trying to win credibility back from the brokerage community by being extremely conservative on forward looking information. This probably explains why he was budgeting oil prices at $13.00 US WTI per barrel for 1999 per his discussion in the annual report. I'm thinking of getting back into this stock for a few reasons: - The Company is gas weighted (ie. 73% last year) which will significantly improve their netbacks. - Mr. Janisch and the very experienced board appear to be growing the Company cautiously and keeping balance sheet strong (ie. plenty of room on credit line and keeping debt as a low (<2:1) multiple of cash flow) - After taking into account the working capital deficit at December 31, 1998 the Company had net debt of only $4.0 million with another $6.0 million available on their bank line. Combined with 1999 cash flow (of wihich no forecasts are available) the Company will be able to proceed in growing production through drilling and/or acquisitons. - Unfortunately the Company has not put out any 1999 cash flow forecasts that I am aware of. However on a quick and dirty basis if you assume a small increase in average production to 1000 BOE per day , and $12.00 corporate net backs (which is conservative given current gas and oil prices) your cash flow is $4.4 million or $0.34 per share (basic based on 13 million shares outstanding) Based on this very crude analysis the stock is currently trading at only 2 times 1999 cash flow. - The Company's NAV was pegged at $1.11 at year-end (NPV 12% with proven + risked probable reserves) which is a large discount to current stock price in range of $0.65 to $0.70. Note also that NAV today would be a lot higher given the significant jump in both gas and oil companies. The biggest drawbacks I have with the Company are: - In the annual report the President mentioned that primary method of growth would be through acquisitions. I wasn't sure why he said this until I notices that the Company has an extremely small acreage position (ie. only 14,237 net acres at year-end) It seems to me they are telling us they are prospect poor. With the significant increase in commodity prices over the past several months it is going to get a lot more expensive to buy production (ie. we are back to the days of folks paying $30,000 per BOE of production) . However, this might be the only way management can successfully grow the Company. - The biggest problem I have is with their reserves. Only 1.6 million BOE of proven reserves at December 31, 1998. Assuming the Company's production stays at the 1998 average of 848 BOE per day , reserve life is only 5 years !!!! However, it is encouraging to see that company is using a very conservative reserve engineer in Mcdaniels. Therefore one has much more confidence in reserve numbers disclosed. Richard the pluses outweigh the minuses in the short-term. Also now seems to be a good time to get in on the stock as many juniors are just now starting to run. I think I will pick some up and sit on it for a couple of months. Based on cash flow per share, solid NAV and strong management stock appears to have very little downside. Thanks for the tip. Mike