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August 31, 2001 ARC
Energy Trust (AET.UN on TSE) Calgary, AB,
tel: (403) 292-0680. Price: Aug 30/01: $12.16, 52-week range: $13.54-10.00.
First mentioned at $9 on Feb 4/00 and last reviewed at $12.77 on May
12/01. The trust reported only
a so-so 2ndQ. Production slipped to an average rate of 42,097 boe/d
from 44,271 in the first quarter. This,
combined with lower commodity prices, produced cash flow of $67.5 million,
or 66 cents/unit, down from $89.3 million, or 96 cents/unit.
After having declared distributions of 22 cents/unit in each
of the last 3 months, the trust has lowered the pay-out to 20 cents/unit
in each of the next 3 months, a rate equivalent to that paid out earlier
in the year. The trust suggests that if natural gas prices
stay at current levels, the monthly distribution may be further lowered
in the last quarter. Nevertheless,
the trust is conservatively managed, with about 20% of cash flow held
back for capital expenditures. At its current trading level, the units
yield 19.3% and about 70% of the cash distribution will be considered
taxable in 2001. Allied
Oil & Gas Corp. (AOG on TSE), Calgary, AB,
Tel: (403) 265-9782. Price: Aug 30/01: $2.85, 52-week range: $3.40-0.73. Last mention of the company in this newsletter
was on June 22/01 when trading at $3.00. During the 2ndQ, production rose 4%, mainly as the result of a 10%
increase in natural gas production.
Since the average price received for this gas during the June
quarter was $5.94/mcf vs $9.35 in the first, cash flow decreased from
$6.4 million, or 28 cents/sh to $5.0 million, or 22 cents/sh, Q over
Q. The company is coming off a busy quarter, when
48 wells (32.6 net) were drilled, all successful. In the first half of July, a further 27 gas
wells (20.5 net) were drilled, again all successful. During the 2ndQ, Allied also participated in the drilling of 40
other industry-operated wells in which it has minority interests. All told, in the first 6 months of the year,
the company participated in 139 wells, resulting in 133 gas wells, five
oil wells and one dry hole. Although
this shallow drilling is low risk in nature, it nevertheless indicates
a high level of activity for a junior this size, 23.3 million shs outstanding
on a fully diluted basis. If
awarded a 3 times multiple to a revised cash flow estimate of 90 cents/sh,
produces a share price of $2.70. A
multiple of $30,000 to the 2676 boe/d production produces a share value
of $3.40 Atlas
Energy Ltd. (AED on CDNX), Calgary, AB,
Tel: (403) 215-8313. Price:Aug
30/01: $2.11, 52-week range: $3.40-0.96.
Last mentioned in this newsletter at $2.80 on June 22/01. Atlas
did not disappoint during the 2ndQ.
Natural gas production averaged 9.7 mmcf/d up 10% over the 1Q
production rate and oil & NGL production averaged 604 bbl/d an increase
of 20% over 1Q production. Combined production for the Q was equivalent
to 2,226 boe/d compared with 1,958 boe/d during the first quarter. Natural gas prices averaged $5.77/mcf during
Q2 compared with $8.74 in Q1. Oil
and NGL prices were steadier, but still down, at $28.64/bbl compared
with $30.79 in Q1. This produced
revenues of $6.7 million, cash flow of $4.1 million or 22 cents/sh and
net earnings of $1.5 million, or 8 cents/sh.
Because of lower prices obtained, these are down from Q1 figures
of $8.2 million, $5.1 million or 27 cents/sh and $2.3 million, or 12
cents/sh. During this Q2, Atlas participated in 7 wells (5 net) resulting
in 1 oil well and 6 (4 net) gas wells.
At June 30, Atlas was producing at rates of 11.5 mmcf/d and 700
bbl/d. Over the next 2 quarters,
the company expects to drill a further 14 wells and exit the year with
production averaging 12 Mmcf/d and between 600 and 700 bbl/d. Capex of $4.0 million over the next 6 months should be well covered
by cash flow of $9 million if gas averages $5/mcf and oil remains at
current price levels. But even in a low case scenario of $3.50/mcf,
cash flow over the remainder of the year would come in at $6 million.
Company has long term debt of $9.6 million, representing about 0.6 times
cash flow. Atlas has 18.2 million shares out on a fully
diluted basis. The shares at
$2.15 currently trade at 2.4 times the cash flow estimate of 88 cents/sh. With better visibility, AED could trade at
3.5 times cash flow, or at a price level of $3. Ballard
Power Systems Inc. (BLD on TSE, BLDP on NASDAQ),
Burnaby, BC, Tel: (604) 412-3195. Price: Aug.30/01: C$27.62, 52-week
range: C$179.75-27.05. This
is the first mention of the company in this newsletter. The company has been around since 1979. It is recognized as the world leader in developing, manufacturing
and marketing zero-emission proton exchange membrane (PEM) fuel cells
for use in transportation, electricity generation and portable power
products. In the automobile industry, Ballard has been
partnering with DaimlerChrysler and Ford and has been conducting some
prototype sales to Honda, Nissan, Volkswagen and Yamaha.
In stationary power generators, the company has been catering
to GPU International, ALSTOM, Matsushita, and in portable power generators
to the Coleman Powermate division of Sunbeam.
The latter should be coming to market by year-end 2001. Vehicles powered by Ballard fuel cells are
not expected on the road until 2010.
Revenues are currently modest: this years Q2 showed $14.9 million. The company feels that its cash position, $692.8
million at June 30/01, will see it through until commercial revenues
have some impact. BLD has 90.5
million shares out along with 6.2 million options.
The stock cannot be evaluated on a conventional basis, but the
company has a spot in a diversified investment portfolio as a long term,
promising situation. Canadian
Pacific Limited (CP on TSE and NYSE), Calgary AB, tel: (403) 218-8000. Price: Aug
30/01: C$56.75, 52-week range:$66.95-37.80.
This is the first mention of the company in this newsletter. Subject to shareholders’s approval on Sep.26/01,
Canadian Pacific is splitting up into 5 publicly-traded companies.
Although trading has begun on a “when issued” basis, shareholders
of record October 5 will be receiving stock certificates of each of
the 5 companies and trading of the regular shares are expected to commence
trading on both the TSE and NYSE on October 3/01. For each share of CP, the holder will receive: -
0.684 shares of PanCanadian Energy Corporation, symbol PCE on TSE, PCX
on NYSE Each
of the companies are world class entities and it is this newsletter’s
opinion that investment portfolios will attempt to build up representative
dollar holdings in most of these five. The following attempts to briefly
mention some of the characteristics of each: Canadian
Pacific Railway (CPZ on TSE, CP on NYSE) Calgary
AB, tel: (403) 319-3591. Price: Aug 30/01: $29.85, 52-week range: $34-29.25.
CPR is expected to earn $2.55/sh this year, unchanged from that
of last year. Early projections for 2002 place earnings of $2.85/sh. Comparisons with other railways suggest a one
year share price target of $35. There
will be 158.2 million shares out. CP
Ships Limited (TEU on TSE & NYSE) London
UK, tel: 44-20-7389-1100, Price: Aug 30/01: $17.35, 52-week range:$17.40-16.05.
In the near term, this may be the Cp unit that will lack in performance
since the company is so closely tied to international economic conditions. The company is among the top 10 container shipping companies in
the world. Because of fleet
expansion there is currently downward pressure being put on freight
rates. Earnings for this year are expected to be about
$2/sh, down from $2.61 in 2000. Next
year could see a further drop to possible a level of $1.70/sh, based
on 79.1 million shs out. That
being the case, the stock could very well trade in a price rage of $17
to $22. Fairmont Hotels & Resorts
Inc. (FHR on TSE and NYSE), Toronto ON, Tel: ? , price: Aug 30/01: $35.35,
52-week range:$40.00-33.00. Fairmont
currently has 77 luxury and first class hotels in its portfolio, representing
more than 30,000 rooms.. The
properties are located in Canada, USA, Mexico, Bermuda and Barbados. Some of the familiar names are: the Plaza in
NYC, Fairmont in San Francisco, Royal York in Toronto, Chateau Frontenac
in Quebec City, Banff Springs, Chateau Lake Louise, Jasper Park Lodge,
Chateau Whistler, Kea Lani Maui in Hawaii, Scottsdale Princess, Hamilton
Princess and Southampton Princess in Bermuda, Acapulco Princess and
Pierre Marques in Mexico. Earnings
are projected at $1.10/sh this year, up from $1.07 in 2000, and for
$1.50 next year. There are 79.1 million shares out. Fording
Inc. (FDG on TSE and NYSE), Calgary
AB, tel: (403) 260-9800, price: Aug 30/01: $24.60, 52-week range: $27.25-24.00.
The company is a major producer of metallurgical coal and is planning
on producing thermal coal for power plants. Earnings are projected at $1.75 this year and $1.95 for 2002.
In comparison to similar companies (Peabody, Arch, Consul, Massey
Energy), the stock could trade at a $30 level over a 1 year time period.
Fording expects to pay a quarterly dividend of 12.5 cents, thus
providing the stock with a yield of 2.0%.
There will be 52.5 million shares out. PanCanadian
Energy Corporation (PCE on TSE, PCX on NYSE), Calgary AB, tel: (403) 290-2020,
price: Aug 30/01: $36.50, 52-week range: $37.50-35.20. The company is a major producer of oil and
gas. The stock is currently
trading at a modest 3.4 times anticipated cash flow of $10.80/sh for
2001, or 6.6 times projected earnings of $5.50/sh.
In addition the stock pays a 10 cents quarterly dividend, to
yield 1.1%. A 1-year share price target of $42 appears
reasonable, based on the dynamic nature of its exploration program.
There are 254 million shares outstanding. Equatorial
Energy Inc. (OZ on TSE), Calgary AB, tel:
(403) 264-9562. Price: Aug 30/01: $2.75, 52-week range: $4.20-1.90. This is the first mention of the company in
this newsletter. The company
is engaged in the acquisition, exploration and development of petroleum
and natural gas in Western Canada and Indonesia.
50% of Equatorial’s production is from Indonesia and this is
mainly oil from its two 100% controlled fields, Sembakung on the northeast
coast of Kalimantan and Tanjung Lontar in South Sumatra.
In Canada, the company’s reserve base is 51% oil and 49% gas
on 125,000 acres with core properties in Alberta along with some non-core
properties in Saskatchewan. In addition, Equatorial has an inventory of
247,000 net acres of undeveloped land.
Production during Q2 averaged 8,708 bbl/d of oil & NGL, a
24% increase from the first quarter average production of 7,009 bbl/d,
while natural gas production increased marginally, quarter over quarter,
from19.9Mmcf/d to 20.5 Mmcf/d. Combined,
production came in at a rate of 12,118 boe/d, a significant increase
over the 9,905 boe/d rate of a year ago. This production during the 2nd quarter produced revenues
pf $39.3 million, compared with $31.5 million in the first quarter,
cash flow of $15.6 million vs $9.1 million Q/Q, or 52 cent/sh fully
diluted vs. 37 cents. Adding
these up made for a total over the first 6 months this year of $70.8
million in cash flow, or 91 cents on a fully diluted basis.
Q2 production was split 6,519 boe/d in Indonesia and 5,599 boe/d
in Canada. Over the first 6 months, the company drilled 17 wells in
Indonesia and 22 in Canada and plans to drill a further 18 wells in
Indonesia and 20 wells in Canada over the last 6 months of this year.
Equatorial has 27.9 million shares outstanding, 32.1 million
on a fully diluted basis. It
appears the company will produce $50 million cash flow for the year,
or $1.55 per fully diluted share. Since
the company appears to have growth potential, particularly around Kalimantan
but also along the large amount of undeveloped Canadian acreage, a multiple
of 3 times cash flow may be warranted, pointing the way to a share price
of $4.50. Freehold
Royalty Trust (FRU.UN on TSE) Calgary, AB
tel: (403) 221-0802. Price: Aug 30/01: $9.20, 52-week range: $10.10-8.00.
Last covered in this newsletter at $9.75 on May 12/01, first mentioned
at $8.60 on Dec 28/00. Production
during the 2ndQ of 2001 came in at 6,050 boe/d compared with 5,709 in
the 1st Q. Because
of the large differential between the price of heavy oil and light as
well as from lower prices for natural gas, revenue generated during
the 2nd quarter was down from the first, in spite of increased
production. Distributable income for unitholders amounted
to 44 cents/unit down from 53 cents/unit. Although the regular pay-out of 12 cents/unit each month is being
maintained, the extra for September is 5 cents compared with 11 cents
in June. It now appears that
between 50% and 55% of the income distribution will be taxable for 2001. The price of heavy oil normally increases in
the 2nd half. Management
maintains they are on the lookout for additional acquisition opportunities.
Meanwhile, the apparent $1.64 projected pay-out provides unit
holders with a 17.5% yield. Gauntlet Energy Corporation (GAU on TSE), Calgary AB,
tel: (403) 216-8660. Price: Aug 30/01:$3.50, 52-week range: $6.50-1.10. Last covered in this newsletter at $5.45 on
June 22/01. As expected, production
increased Q/Q, but not quite as much as forecast because of some restraints
in the gas gathering system at Hamburg as well as some delays hampering
exploration activity in central Alberta.
Nevertheless, natural gas production in the 2ndQ of 18.1Mmcf/d
increased 33% over the 13.6 Mmcf/d rate of the 1stQ.
With oil production remaining at modest levels, the combined
rate of 3,226 boe/d showed an increase of close to 30% over the 2,491
average rate in Q1. Revenues and cash flow comparisons pale Q over Q,
as the average price received for gas in the second quarter came to
$5.69/mcf compared with $8.71 received in the 1st quarter.
So, in spite of the increased production, revenues of $10.0 million
in the most recent period compares with $11.5 million received in the
March quarter and cash flow was reduced from $6.6 million, or 40 cents/fdsh,
to $5.1 million, or 30 cents per fully diluted share.
Based on current production rates and present commodity pricing
structures, Gauntlet stock may find a trading level at $4.80 rather
than the price level of $7.60 mentioned on June 22. NAL
Oil & Gas Trust (NAE.UN on TSE) Calgary, AB,
tel: (403) 294-3600. Price: Aug 30/01: $9.29 , 52-week range: $11.75-8.11.
Last mentioned in this newsletter at $10.95 on May 12/01. The
trust reported distributable income of $15.9 million in the June 2ndQ,
down from $23.3 million for the March 1stQ.
After applying $1.9 million to pay down debt as opposed to the
$7.1 million used in the Q1, income of $17.8 million, or 66 cents/unit,
was distributed to unit holders compared with $16.2 million, or 60 cents
in the 1stQ. Production during
this recent quarter came to an average rate of 7,440 boe/d, down from
the 8,592 rate prevailing in the 1stQ. Average price received for natural gas was
$6.61/mcf, contrasted with $9.44 received in the first quarter. As a result of these disappointing results,
the trust has reduced monthly pay-out to unitholders to 20 cents/unit
in each of the months of Sept., Oct. and Nov. compared with the 23 cents
pay-out in each of the 3 previous months.
At the current rate of $2.40, the units presently trade to yield
25.9%. Nycan
Energy Corp. (NYE on TSE), Calgary, AB,
tel: (403) 264-7377. Price: Aug 30/01: $1.24, 52-week range: $2.25-1.05.
Last mentioned in this newsletter on June 22/01 at $1.42. The Company reported 2nd quarter production figures comparable
to the 1stQ, with a slight increase in oil production. During the 3Q, gas production is expected to
increase to the rate of 7.7 Mmcf/d from 6.2. The company acquired an
additional 15,000 acres bringing its holdings to a total of 70,000 net
acres. Refreshing to see a director of the company
recently acquiring 841,000 shares at $1.37/sh, bringing his total held
to 4.2 million shares, or 25% of the outstanding shares. It now appears the company is operating on the basis of producing
on an annual cash flow of 55 cents/sh and net of 26 cents/sh. That being the case, a stock trading level
of $2.20 would be reasonable. PrimeWest
Energy Trust (PWI.UN on TSE) Calgary, AB,
tel: (403) 234-6600. Price: Aug 30/01: $7.69, 52-week range: $10.62-7.49.
Last mentioned in this newsletter at $9.91 on May 12/01.
Production figures for the June 2Q came in marginally better
than expected at an average rate of 35,353 boe/d, composed of 14,067
bbl/d of oil & NGL and 128 Mmcf/d of natural gas.
Due to lower commodity prices, cash flow represented 59 cents/unit,
down from Q1’s 79 cents/unit. The
fund managers intent to continue paying out on a monthly basis 22 cents/unit,
at least through until the end of 2001.
At this rate, the units currently trade to yield 33%. However, they foresee the possibility of cutting this to 15 cents/unit
on a monthly basis in 2002 if prices, particularly natural gas, trend
lower. At a $1.80 annual pay-out, the units yield 22.5% Real
Resources (RER on TSE) Calgary, AB, tel: (403) 262-9077. Price: Aug 30/01: $2.95, 52-week range: $4.80-2.55.
Last mentioned in this newsletter at $3.94 on June 22/01.
The company came out with an excellent June quarter. Production of 4,218 boe/d topped the March Q1 rate of 3,568 boed.
This was composed of oil and NGL at a rate of 2,616 bbl/d compared
with March’s 2,117 and natural gas averaging 9,612 Mmcf/d up from the
Q1 rate of 8,708. In spite of
weaker commodity prices, particularly gas averaging $5.46/mcf vs $8.52
in the 1st quarter, revenues and cash flow held steady and
net income increased to $3.1 million, or 17 cents/sh compared with$2.3
million or 12 cents/sh in the 1st quarter. Real Resources appears to be well on its way
to achieving cash flow of $1.50/sh for the year and with continued growth
in production, its shares could command a 3.5 times multiple to cash
flow, implying a possible share price of $5.25.
Storm
Energy Inc. (SME on TSE) Calgary, AB, Tel: (403) 264-3959, Price: Aug 30/01: $8.00, 52-week range: $12.00-5.00.
First covered at $2.30 on Dec 26/99 and last mentioned at $10.10
on May 12/01. The company reported strong results in Q2 ended June 30. Production increased 7.4% to 10,266 boe/d from
9,560 in the first Q, with the increase coming from natural gas produced
at an average rate of 24.6 mcf/d compared with 18.9 in the first quarter. Because the average price realized from gas
in the 2nd Q was $6.66/mcf compared with $11.04 in the first,
cash flow came to $21.7 million, or 75 cents/sh, down from $23 million,
or 81 cents/sh. Production
is currently running at a rate 2% higher and management expects to maintain
this level through the 3Q during which it expects to $10 million on
exploration, drilling 14 wells. Under
borrowing facilities of $100 million, the company currently has a net
debt of $67.6 million. Management expects cash flow of $44.7 million
over the remaining 2 quarters and after committing $28 million in exploration
over this remaining time frame, expects to end the year with a net debt
position of $50 million. The
company is now forecasting cash flow for the year at $$89.4 million,
or $3.12/fully diluted share, and net income of $34.6 million, or $1.21/fds. A multiple of 3.5 times the quality cash-flow,
points to a $10.90 share evaluation. A $30,000 factor applied to production of 10,500 boe/d implies a
share evaluation of $11.25. Summit
Resources (SUI on TSE), Calgary, AB, tel: (403) 269-4400. Price: Aug 30/01:
$5.10, 52-week range: $7.40-3.70. Last
mentioned in this newsletter on May 12/01 at $6.55. Summit came off a good 2Q ended June 30 when production increased
by 3% to an average rate of 14,047 boe/d from 13,662 during the first
quarter. Due to considerably
lower natural gas prices Q over Q, from $9.22/mcf/d in Q1 to $6.47 in
Q2, cash flow declined to $27.6 million, or 84 cents/sh, from $$33.3
million, or $1.1/sh. Because
of a lower tax rate enacted in Alberta, net income actually increased
during the quarter to $12.4 million, or 38 cents/sh, from $11.8 million,
or 36 cents/sh. in the March first quarter.
Debt has been reduced by over $30 million from year-end and now
stands at $71 million. Put in perspective, management expects to generate
cash flow this year of $100 million.
The company has 4 drill rigs currently operating in southern
Alberta and southeast Saskatchewan.
The third quarter is expected to be one of the busiest for the
company with capital expenditures of $20 million. If management’s projection
of $3.10/sh in cash flow is met, the shares could very well trade at
3 times this multiple, proving the stock to be currently under-valued. . |