This Week in Oil and Gas by Gary Edmondson (MF Wildcat) (NOTE: You may have to maximize your browser's window or scroll to the right to view this page.) Houston, TX (March 9, 1997) -- It's nice to see that the month of February is now behind us. February brought with it a very abrupt swing in momentum in the oil and gas sector. The momentum swing was driven almost exclusively by a drop in commodity prices and effected a large majority of companies in the industry. Indiscriminate selling has prevailed. In few cases has it mattered whether an individual company's prospects remained bright or whether a given company has been relatively undervalued with respect to its peers. I certainly don't advocate that investors ignore the trend, but I do feel it greatly distorts and misrepresents the prospects that this industry still provides for individual investors. Large-momentum investors who have substantially fueled the selloff are seeking profits and desiring to move their money elsewhere out of commodity market. These fears may or may not be meaningful to the longer-term value investor. Those of us who have studied individual firms and bought those that we believe represent long-term value are likely to continue to be rewarded once this selloff has run its course. Starting this week, I will provide with each report a detailed year-to-date performance recap of the twenty Wildcat Exploration and Production stocks that I actively follow and discuss. Since these reports are now widely accessible to everyone with access to the Internet, it no longer makes sense to provide the recap only in the AOL message folders. So welcome to all readers from other Internet providers. Everyone can find the statistical recap each week in the concluding section of this report. The comments made in the introduction can be illustrated by looking in detail at an announcement from the past week. One company out of the Wildcat 20 which experienced a very substantial selloff during the month of February was SWIFT ENERGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SFY)") else Response.Write("(NYSE: SFY)") end if %>. The company traded as high as $36 1/2 in early January, only to plunge to near $21 in recent weeks. Swift announced a stock buyback program this week primarily as a result of the value that the company now sees in its own stock. As noted by A. Earl Swift, Chairman and President of Swift Energy, "The anticipated increase in 1997 revenues resulting from forecasted strong production growth from the company's development drilling program and the significant reduction in the stock price in what is viewed as an overreaction to non-company specific events, affords the company the opportunity to make an attractive investment, while maintaining its planned capital expenditures." Mr. Swift has very clearly provided a viewpoint that I share and that I believe applies to a number of our domestic oil and companies, particularly those which produce primarily gas such as Swift Energy. The key phrase in this comment is "overreaction to non-company specific events". The primary event triggering this selloff is the drop in oil prices from near $26 per barrel to the $20 - $22 range as publicity surrounding Iraq's oil sales began to be widely reported in the financial press. For a company like Swift that has about 85% of its production in natural gas, the world crude oil price has little direct effect on the company's plans or prospects. While it is true that the price of natural gas has also fallen from seasonal highs, natural gas prices have not captivated the minds of either the financial press nor the momentum investment community. In fact it's probably safe to say that the only well understood difference between these products on Wall Street is the different three letters used to spell them. As of the end of February, the average natural gas price has returned to a level that was both expected and is in line with most analyst forecasts that I have seen. While unusually high prices have spurred earnings in December and January, no one in the industry expected those to continue. But these prices perhaps prompted momentum buyers to drive shares of some companies, including Swift, to unreasonable highs in early January. Quoting Mr. Swift again, "while the price of oil and gas has softened with the decline in natural gas demand spurred by the approach of spring, nothing has happened that is unusual or unexpected." In fact, if gas prices follow normal seasonal patterns through the rest of the year, 1997 average prices will once again average over $2 per mcf for the year. The downside is considered to be low because of the already high production capacity utilization within the U.S. and limitations on Canadian imports that will remain throughout 1997. While describing Swift Energy's prospects in 1997, Mr. Swift also mentioned the "anticipated increase in 1997 revenues resulting from forecasted strong production growth". As I have cautioned many times here in the Motley Fool, the way to buy oil and gas production companies is to look for those that can still demonstrate production, revenue and cash flow growth in a low or declining price environment. A number of companies in the Wildcat 20 stocks below meet this criteria and should give anyone a good starting point for identifying values that exist in this sector now. For those of you interested in more information about Swift Energy, you might consider visiting their web site at www.swiftenergy.com. OTHER NEWS CHESAPEAKE ENERGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CHK)") else Response.Write("(NYSE: CHK)") end if %> is another company where substantially rising production and a high percentage of gas production provide the basis for a tremendous outlook for the rest of 1997. But like Swift Energy, the company was hit with selling pressure last month. The company's shares fell from an early year high of $31 3/4 to as low as $19 3/8 in mid-February. In a move that should be greatly appreciated by all Foolish investors that expect accountability of corporate officers, CHK's Chairman Aubrey K. McClendon and President Tom L. Ward, co-founders of the company, each promptly bought 730,750 shares on the open market at a personal cost of about $15 million each. Commenting on the move in a published article, Mr. McClendon stated, "We viewed the value as extremely compelling, and we jumped on it." Chesapeake was also featured in a recent Shareholder Scoreboard section of the Wall Street Journal as the best Three-Year Performer. TRITON ENERGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OIL)") else Response.Write("(NYSE: OIL)") end if %> announced that the Yumeca-2 exploratory well in Colombia on the El Pinal Block is being plugged and abandoned. Electric logs failed to confirm the presence of commercial quantities of oil or gas. The well was drilled to a total depth of 13,500 feet. UPDATE ON COMMODITY PRICES Numerous opinions are floating around about where oil prices are going. One analyst recently provided an opinion that I think has a high likelihood of being accurate. I won't embarass the gentleman by naming him, but he did provide us his insight that oil prices were likely to remain within a range of $13 to $28 per barrel for the remainder of the century. Most analysts are focused on an average price for crude oil in 1997 of $20 - $21 per barrel -- a price at which most companies will do quite well and that will support the continued level of investment in major projects both domestically and internationally. During the past week, crude oil stayed right in this range prior to closing the week at $21.28. I might add that most forecasts that I see are for natural gas prices to average $2 - $2.25 for the full year of 1997. During the past week, prices fluctuated well under the $2 mark, reaching a low of $1.80 prior to closing the week at $1.947. WEEKLY RECAP This Week Year to Date Wildcat 20 Expl/Prod Cos. +4.24% -8.56% DJ Major Integrated Oils +2.57 +3.47 DJ Secondary Oils +0.88 -7.38 DJ Drillers +10.74 -3.49 DJ Service and Equipment +5.71 +6.92 Dow Jones Industrial Average +1.79 +8.57 S&P 500 +1.79 +8.67 Company Symbol 1/1/97 This Week Week Year Price Price Change Change British Petroleum BP 141 3/8 137 3/8 3.78% -2.83% Texaco TX 98 1/8 103 4.17% 4.97% Santa Fe SFR 13 7/8 13 7/8 6.73% 0.00% Apache Corp APA 35 1/8 33 7/8 4.63% -3.56% Anadarko Pet APC 64 3/4 57 1/2 2.22% -11.20% UnionTexas UTH 22 3/8 19 1/8 3.38% -14.53% Triton Energy OIL 48 1/2 41 7/8 0.00% -13.66% Arakis Energy AKSEF 3 5/16 3 31/32 7.63% 19.81% Ranger Oil RGO 9 7/8 9 0.00% -8.86% Rennaisance RES.T 46.65 41.05 5.94% -12.00% $Can Forcenergy FGAS 36 1/4 26 3/8 1.44% -27.24% Chesapeake Egy CHK 27 13/16 21 1/2 3.61% -22.70% Belwether Expl BELW 7 7/8 10 1.27% 26.98% Benton O&G BNTN 22 5/8 17 3/16 12.70% -24.03% Swift Energy SFY 29 7/8 24 3/8 13.37% -18.41% TransTexas Gas TTXG 14 1/2 14 3/4 -2.18% 1.72% Louis Dreyfus NG LD 17 1/8 16 1/8 0.00% -5.84% Comstock Rescs CRK 13 9 5/8 6.94% -25.96% Saba Pet SAB 25 1/4 19 1/4 14.07% -23.76% Vintage Pet VPI 34 1/2 31 2.90% -10.14% Avg 4.24% -8.56%

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