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   Gold/Mining/EnergyOil & Gas Exploration & Production Co.'s


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To: Ed Ajootian who wrote (55)5/5/2003 2:54:23 PM
From: DELT1970
   of 112
 
I hope FBR issues their report tomorrow. They were a questioner on the call today. The EPS was on target today, but CFPS was 8 cents below consensus and may account for the small selloff. I've picked up more shares on the comment they'll pay down another $15M debt in Q2. The earnings guidance, hedging position and latest slides are on the website and are very encouraging.

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To: DELT1970 who wrote (58)5/7/2003 7:30:21 AM
From: Ed Ajootian
   of 112
 
Delt, Thanks for your thoughts. I blew out a big chunk of my EPL when I saw that they incurred a ~ $25 M liability last quarter in connection with their earn-out obligation for the purchase of Hall=Houston and declined to disclose it in their PR. They paid cash for that when they coulda paid half stock, when the stock was trading at $10, and then they extinguish the borrowing for that by later issuing stock where they get a net of $9.

This is not a megabucks issue but my concern is that if management is stupid enough to try to get away with pushing this stuff under the rug what else are they doing that we can't detect?

I hope EPL management is not wondering why they trade at such a low multiple of cash flow because to me the answer is now obvious.

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To: Ed Ajootian who started this subject5/11/2003 10:50:39 AM
From: Ed Ajootian
   of 112
 
ATP Price Target $7.50/share, by CK Cooper & Co.

C. K. COOPER & COMPANY – Industry Report, April, 2003

C. K. Cooper & Company has not
provided Financial Advisory services to
this issue in the past 12 months.
The covering analyst does have an
ownership position in this issue.
C. K. cooper & Company does not own
5% or more of this issue.

ATP Oil & Gas does one thing and they do it efficiently, acquire
offshore proven undeveloped reserves that are deemed non-core
assets by the majors and then institute their team of experts and
complete the development of the well. This strategy has pioneered
the company to achieve 7 straight years of increased production.
In 2001 ATP made a bold move. They decided to apply their
proven business techniques into a new offshore area, the North Sea
of the U.K. After several years of hard work and a sizeable amount of capital expenditures their first well
the Helvellyn, tested in January at 60 Mmcfe per day, of which ATP owns 50%. This well is waiting for
completion to a BP platform; upon completion the company’s daily production will be more than 100 Mcfe
per day. For a small independent these production numbers are astonishing and prove that the
company’s business model is working.
It seems that the market has recently grown impatient waiting for the Helvellyn to begin production. This
has resulted in a stock sell off, in our opinion, creating a ripe opportunity for investors looking to
capitalize on the current natural gas shortage in the U.S. especially given the fact that 85% of ATP’s
proven reserves are natural gas.

APPLYING GULF OF MEXICO TECHNOLOGY TO THE NORTH SEA
“Innovation Driving Business Opportunities”
ATP’s first completed subsea tieback well, the Ladybug #1 in the Garden Banks Block 409, utilized a
groundbreaking methodology of simultaneously installing both the pipeline and the umbilical cord. This
process resulted in lowering developmental costs while at the same time limiting diver exposure. ATP
has long been recognized for pushing existing technologies to new levels. Their experience and use of
subsea technology will manifest seamlessly into their projects in the North Sea. ATP has recently
announced their second international acquisition in the North Sea, this time in the Dutch Sector with the
attainment of Block L06. Understand that this block hugs the coastline of the Netherlands, a prominent
import/export hub that on average sees over 300 merchant ships per day transporting goods all across
the world. With such heavy traffic, the use of traditional platforms has been discouraged given the
dangers related to fog and inclement weather that could lead to disastrous environmental damage if an
accident where to occur. At the request of Shell, ATP will begin the process of evaluating several PUD
locations that lie in or around these shipping channels. Their goal is to utilize their expertise in subsea
technology to capitalize on the immense amount of “low hanging fruit” installing umbilical cords to
already existing platforms allowing unproductive reserves to begin production. Additionally there is a
large area of the North Sea that is primarily used for bombing practice by the U.K. Air Force; this area will
also provide the company with another ideal area of exploitation utilizing subsea technology.

CONCLUSION
“Undervalued & Unique”
In conclusion ATP Oil & Gas has an enormous amount of unique and exciting prospects to keep their
team of experts hard at work. When you combine current production and strong commodity price
environment the resultant affects for a small company such as ATP is an enormous amount of cash flow
to fund future development operations. With projected cash flow of approximately $70 million for 2003
and $100 million for 2004 and a market cap of only $70 million the company is trading at one times cash
flow. The typical industry peer group trades well above three times cash flow. We would argue that ATP
represents a compelling fundamental value. Additionally we would also argue that as their GOM success
transfers to the North Sea, ATP would be a prime candidate for larger Oil & Gas Company looking to
expand operations. It is often rare to find a company that operates efficiently in one key area, let alone
a company that potentially will have significant first mover advantage in three distinct areas. We
maintain our current ratings of Short-Term/Long-Term Buy.
Philip J. McPherson - Oil & Gas Group
April 30, 2003

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To: Ed Ajootian who wrote (60)5/11/2003 1:43:59 PM
From: Bearcatbob
   of 112
 
Ed, Does the current PQUE price catastrophe look like an opportunity yet?

Bob

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To: Bearcatbob who wrote (61)5/11/2003 5:22:20 PM
From: Ed Ajootian
   of 112
 
BCBob, Not really following PQUE much at this point. I didn't even get a chance to listen to the CC. I still have it on the radar screen but I probably won't even start to really look at it again until the stock price shows some stability for a solid 2 weeks or so, or they hit the monster well you keep mentioning. Any idea what that is supposed to hit TD?

The stock I like the most right now is not even an E&P company, Giant Industries (GI). They own a coupla oil refineries and are way undervalued due to a massive amount of debt.

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To: Ed Ajootian who wrote (47)5/12/2003 8:08:52 AM
From: Ed Ajootian
   of 112
 
From SMH report on KCS dated 5/9/03, raising target to $6.

KEY POINTS
• The involuntary “belt-tightening” in 2002 left KCS with a high-grade drilling prospect inventory for 2003. While most of
the wells will be targeting traps in the 1 bcfe to 3 bcfe range, KCS has 5 to 7 wells in South Texas looking for big targets in
the 20 bcfe to 50 bcfe range. If KCS is reasonably successful with the drill bit, 2003 could be significant in terms of reserve
additions and value creation.
• We have revised our forecast and estimates to reflect guidance, plus an expected $4.7 million gain in the second quarter
related to the sale of emission credits. We are raising our 12-month price target to $6.00, which is based on 3.6 times our
2003 CFPS estimate of $1.65. We think KCS could generate cash flow of $67 million, assuming $28.75/bbl oil and
$5.00/mmbtu gas, and thereby finance its $55-million capital-spending program, in addition to further reducing debt. We
reiterate our Buy recommendation
Sanders Morris Harris: KCS 2
Company Profile
KCS’s primary focus areas are the Mid-Continent region and onshore Gulf Coast. The company has key operations in the
Anadarko and Arkoma basins, North Louisiana, West Texas and Michigan. Along the Gulf Coast, the focus properties are in
South Texas, Coastal Louisiana and the Mississippi Salt Basin. KCS Energy devoted most of 2002 toward the redemption of
the $61.274 million Senior Notes that were due January 15, 2003. The company sold assets and slashed its budget to conserve
cash in order to meet this obligation. KCS was able to negotiate the financing to pay off the notes. With the financing behind
it, KCS is finally able to devote 100% of its attention on drilling, with some encouraging early results.
First Quarter Performance
KCS reported first-quarter 2003 EPS/CFPS of $0.36/$0.47, netting out the effect of an accounting change (SFAS 143), beating
our estimate of $0.30/$0.42. The variance was largely driven by better-than-expected commodity prices after adjusting for
hedges. The company paid down more debt and ended the quarter with long-term debt of $185.5 million, and a debt-to-cap
ratio of 109%. KCS will likely continue to pay down debt even with an expanded capital budget of $55 million. If commodity
prices hold up, KCS could have positive equity by year-end.
Table 1: First Quarter Results
KCS Energy Inc. 1Q02 1Q03 03-02 % Change
Production (bcfe) 10.35 7.55 -2.80 -27%
Gas Production (Bcf) 8.31 5.98 -2.34 -28%
Oil Production (mmbbl) 0.27 0.22 -0.05 -20%
NGL Production (mmbbl) 0.07 0.05 -0.02 -32%
Oil/Gas Revenue ($ million) 28.82 40.44 11.62 40%
EPS ($/diluted share) -0.15 0.36 0.51 NM
CFPS ($/diluted share) 0.07 0.47 0.41 616%
Gas Realization ($/mcf) 2.88 5.51 2.63 91%
Oil Realization ($/boe) 17.70 27.48 9.78 55%
NGL Realization ($/boe) 9.03 17.27 8.24 91%
Cash Cost ($/mcfe) 1.46 2.01 0.55 38%
DD&A ($/mcfe) 1.26 1.45 0.18 14%
All-in Cost ($/mcfe) 2.72 3.45 0.74 27%
Debt-to-Book Cap 113% 109% -0.04 -4%
EBIT -0.72 18.94 19.66 NM
Operational Summary
KCS will be drilling aggressively in 2003. The focus will be on development wells during the first half of the year, in order to
generate more cash in this high commodity price environment. Toward the second half of the year, KCS will drill more
exploration wells to grow its reserves. The involuntary “belt-tightening” in 2002 left KCS with a high-grade drilling prospect
inventory for 2003. During the first quarter, KCS drilled fourteen wells, with a 93% success rate, and drilling during the
second quarter thus far has yielded a 100% success rate. Currently, KCS has six rigs drilling: one in Sutton County Texas, two
in south Texas and three in Louisiana and East Texas.
The company plans to drill a total of 60 to 80 wells in 2003:
• Louisiana and East Texas: 16 to 24
• Oklahoma: 5 to 10
• West Texas: 13 to 22
• South Texas: 14 to 20
• Other areas: 2 to 4.
Although most of the wells will be targeting traps in the 1 bcfe to 3 bcfe range, KCS has 5 to 7 wells looking for big targets in
the 20 bcfe to 50 bcfe range in South Texas. Most of these wells will be drilled during the second half. We like this portfolio—
KCS has an average 48% working interest, and a tally of the top six prospects could result in an unrisked net exposure of 131
bcfe to KCS, which is significant relative to KCS Energy’s year-end reserves of 196 bcfe.
Sanders Morris Harris: KCS 3
Table 2: South Texas Exploration Exposure
Prospects Gross-bcfe Working Int. Net Unrisked-Bcfe
Delhi 50 50% 25
5 Mile Creek 25 50% 13
E. Marshall 25 25% 6
Ray George 50 50% 25
Austin Deep 75 50% 38
Coquat Deep 50 50% 25
275 48% 131
Revising Estimates
The company is raising full-year production guidance to 32 bcfe to 36 bcfe versus the prior forecast of 31 bcfe to 35 bcfe.
KCS Energy is contemplating a mid-year reserve update—our interpretation is that KCS is confident. We revised our forecast
and estimates to reflect guidance, plus an expected $4.7 million gain in the second quarter related to the sale of emission
credits. We are increasing our 12-month price target to $6.00, which is based on 3.5 times our 2003 CFPS estimate of $1.65.
Our previous target was $5.00. We estimate that KCS could generate cash flow of $67 million, assuming $28.75/bbl oil and
$5.00/mmbtu gas, and thereby finance its $55 million capital spending program, in addition to further reducing debt. We
reiterate our Buy recommendation.
Table 3: Revised Estimates
Current Previous
2003E EPS $1.05 $0.85
2003E CFPS $1.65 $1.41
2004E EPS $0.89 $0.91
2004E EPS $1.72 $1.70
2003E Basic Share Base (million) 38.97 38.95
2003E WTI ($/bbl) $28.75 $28.75
2003E Henry Hub ($/mcf) $5.00 $5.00
2004E WTI ($/bbl) $26.00 $26.00
2004E Henry Hub ($/mcf) $4.50 $4.50
2003E Production (bcfe) 33.27 33.01
2004E Production (bcfe) 35.35 35.19
2003E Production Growth (11%) (12%)
2004E Production Growth 6% 7%
2003E All-in Cost ($/mcfe) $3.19 $3.15
2003E Cash Cost ($/mcfe) $1.77 $1.77
SMH estimates
Valuation and Price Target
In valuing our E&P companies, we use a price-to-cash flow multiple. We establish a reasonable range based on historic
averages of a group of broad-based E&P companies, which includes twelve E&P companies with market capitalizations
ranging from $900 million to over $11 billion. Our 12-month price target of $6.00 is based on 3.6 times our 2003 cash flow
per share estimate of $1.65. We used a low multiple to reflect KCS’s high leverage, which is currently about 109%. We also
revised our net asset value (NAV) analysis for KCS. Using our 2003 price forecast of $28.75/bbl for oil and $5.00/mmbtu for
gas, we arrived at $8.52 per share, net of debt. Under a more modest assumption of $26.00/bbl oil and $4.50/mmbtu for gas,
KCS’s NAV is $7.28.
Investment Risks
• KCS has a small market capitalization, a relatively thin float and light trading volume, which, under certain circumstances,
could make the stock more volatile.
• The company’s production mix is roughly 79% natural gas: with each $0.10/mmbtu change in Henry Hub natural gas prices,
both 2003E EPS and CFPS could be impacted by $0.04 each. Also, with each $1.00/bbl change in WTI oil price, the 2003E
EPS and CFPS could both be impacted by $0.02.
• In addition, the high debt level makes KCS more sensitive to positive or negative moves in U.S. natural gas prices.

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To: Ed Ajootian who wrote (63)5/18/2003 1:11:42 PM
From: DELT1970
   of 112
 
XEC lags CRK, despite its lower debt. Have you looked recently at XEC, Ed?
siliconinvestor.com

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To: DELT1970 who wrote (64)5/18/2003 7:53:22 PM
From: Ed Ajootian
   of 112
 
Yes, I have even bought a little of it, right after the 1Q press release. They are getting a very low multiple of Enterprise Value/ EBITDA. Their EV is actually a bit _lower than their market cap because they not only have no net debt but actually have net excess cash!

Been meaning to look at them more, and listen to the 1Q CC, but right now I'm having too much fun buying the over-levered burn-outs that are being saved by these high commodity prices, where the market has been a bit slow in realizing the turnaround: KCS, ATPG, TMR, MSSN, etc.

Would be interested to hear what you think about XEC if you look at them more.

BTW, I need to retract my previous comment about EPL, it looks like their earn-out payment was only about $1 M for 1Q, obviously not large enough to warrant special disclosure. Still a bit befuddled as to how their debt got so high in the 3 months ended 3/31/03, but it looks like they are in good shape now that they raised the equity capital.

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To: Ed Ajootian who wrote (65)5/19/2003 11:29:59 AM
From: DELT1970
   of 112
 
Merrill Lynch is pounding the table today for Pogo, Stone, Newfield and Energy Partners. On EPL they say:
 Energy Partners (EPL, $10.74, C-1-9)
• A value, offshore Gulf of Mexico oriented E&P that
focuses on balanced operations (exporation,
exploitation and acquisitions), 60% of its production is
natural gas, roughly 30% of its 2003 production is
hedged. Our current 2003 fully diluted operating
EPS/DCFPS estimates of $0.97/$3.92 assume 22%
volume growth, and our 2004 estimates of $0.37/$3.64
forecast 5% volume growth, and assume no
exploration success. EPL could generate $50 MM in
free cash flow this year. Our $14 price objective is
based on 3.6x 2003E DCFPS, which is in line with its
offshore oriented peer group average. The risks to
achieving this price objective is a sustained decline in
commodity prices, unfavorable drilling results, oilfield
services cost inflation and project timing delays.

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To: Ed Ajootian who started this subject5/29/2003 3:59:04 PM
From: sam_n_cctx
   of 112
 
ED,

i dunno if u still follow, or get the press releases from EPL, but they just announced, two sucessfull well completions

sam

biz.yahoo.com

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