(Editor's note: All dollar amounts are Canadian. Recently, US$1 equaled C$1.45.) "We recommend to investors a Buy of Purcell Energy's shares based on a combination of strong fundamentals for natural gas prices and increasing production, cash flow and earnings for the company," says Scott Banwell, oil and gas research analyst for Loewen, Ondaatje, McCutcheon Ltd. in Toronto. The attractiveness of its core asset to other producers and the likelihood of upward revisions to Purcell's estimated net asset value justify a trading multiple of five times estimated 2001 fully diluted discretionary cash flow of $1.17 per share, he says. "This results in a 12-month stock price target of $5.85 per share-with upside potential if natural gas markets remain elevated." Based in Calgary, Purcell Energy is a Canadian junior oil and gas producer focused primarily in the southern Northwest Territories, where it began exploring in the mid-1980s. Its core area, developed during a 13-year period, is a 16-section block of land just northwest of Fort Liard. There, Purcell has interests in three major natural gas wells, along with partner Chevron Canada Resources. The company also has interests in several oil and gas properties in Saskatchewan and Alberta. At year-end 1999, total proven and probable reserves were estimated at 2.5 million bbl. of oil and liquids and 93.7 billion cu. ft. of gas. "Purcell Energy has a 24% interest in the largest producing onshore natural gas well in North America-the K-29 well near Fort Liard, which was brought on stream last April at a flow rate of 75 million cu. ft. per day of raw gas," says Banwell. "In late October or early November 2000, the Fort Liard M-25 well, in which PEL also has a 24% interest, is expected to be tied in and flow at a similar rate to K-29." In addition, the company's original 1987 Fort Liard F-25A discovery well, in which Purcell has a 60% interest, is expected to be reworked and tied in by early 2001. F-25A should produce raw gas in the range of 10- to 20 million cu. ft. per day. As a result of these events, Purcell's estimated average daily gas production is forecast to rise from 3.7 million cu. ft. in 1999 to 12.9 million this year, to 34.8 million in 2001. "These three wells, which have already been drilled, will help raise Purcell's net gas sales by more than 900% during one of the strongest periods for natural gas prices in history." What's next for Purcell? Talisman Energy, an experienced Foothills driller looking to expand its presence in the Northwest Territories, has signed a 60-40 exploration joint-venture agreement with Purcell. In addition, Purcell is looking to add another core area. "Given its experience in the southern Northwest Territories, areas in northwest Alberta or northern British Columbia would seem likely," the analyst says. Note: Analysis took place 6-13-00 when PEL closed at $3.75 per share and was reaffirmed 6-30 when $3.83. Currently, some 27.9 million fully diluted common shares are outstanding. The recent 52-week price range was $4-$2.05.
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