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 16, 1997) -- Last week we saw a resumption of weakness among exploration and production companies. The Wildcat 20 stocks dropped 2.42% on the week and are now down 10.77% on the year. A recent check of the relative strengths of various companies illustrated the breakdown. Few of these twenty or other energy-related stocks are now maintaining a relative strength at or over the magic 80. Among the Wildcat 20, SABA PETROLEUM (ASE: SAB) remains strong at 99, outstanding performer BELWETHER EXPLORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BELW)") else Response.Write("(Nasdaq: BELW)") end if %> is close behind at 94, FORCENERGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FGAS)") else Response.Write("(Nasdaq: FGAS)") end if %> is at 84 and TRANSTEXAS GAS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TTXG)") else Response.Write("(Nasdaq: TTXG)") end if %> is on the cusp at 80. Highly rated SWIFT ENERGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SFY)") else Response.Write("(NYSE: SFY)") end if %> and VINTAGE PETROLEUM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VPI)") else Response.Write("(NYSE: VPI)") end if %> have dropped under 80 at 74 and 64 respectively. Strong buy ratings are being maintained by a majority of analysts on CHESAPEAKE ENERGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CHK)") else Response.Write("(NYSE: CHK)") end if %> and COMSTOCK RESOURCES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CRK)") else Response.Write("(NYSE: CRK)") end if %>, but their relative strengths have plummeted to 26 and 43 respectively. For those of you that saw last week's report and the discussion of the Swift Energy chairman's description of his company's drop in stock price, you will remember his opinion that the fall has been an "overreaction to non-company specific events". But the market's reaction to the weakening prices of crude oil and natural gas has affected all of these companies whether we investors believe it is warranted or not. The stock price decline is certainly an overreaction to what otherwise would be viewed as a seasonal drop in prices. But momentum players, having participated in the strong early year runups in many companies, were anxious to take their profits and this momentum selling has damaged confidence in the sector, despite the fact that those factors that prompted the 1996 rally remain in affect in 1997. Despite my advocacy of the oil and gas sector, I caution investors to recognize the deep sector weakness and consider investing only in those companies where a longer-term perspective will provide an opportunity to realize values that are available now in many of these companies. THREE ATTRACTIVE COMPANIES So where are these companies? How about BRITISH PETROLEUM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BP)") else Response.Write("(NYSE: BP)") end if %>, TRITON ENERGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OIL)") else Response.Write("(NYSE: OIL)") end if %> or Chesapeake Energy, despite its aforementioned relative strength weakness. BP has long been my favorite among the major integrated oils, but the company got my attention again this week when it said that it expects to increase production over a million barrels per day to 2.5 million barrels of oil and gas a day within the next decade. And CEO John Browne indicated that the company's goal to improve underlying annual income by $1.5 billion a year by the end of the decade could be reached "at least a year ahead of schedule". BP announced two major discoveries and a variety of other exploration success from 1996. Major discoveries were the Perseus field in the North West Shelf of Australia, which contains an estimated nine trillion cubic feet of gas (BP, 16.67%) and the Girassol oil field offshore Angola (BP, 16.67%). Other discoveries noted by the company, which are still being assessed, include significant finds in the West of Shetland offshore area, Norway, Alaska, the Gulf of Mexico, Venezuela and Papua New Guinea. BP expects to maintain current levels of production in the North Sea and Alaska of approximately 500,000 barrels a day each, to grow production by 250,000 barrels a day from the Gulf of Mexico and an equal amount from South America, where the company is active in several countries including a major presence in Colombia. New production of 1 million barrels a day is expected to be added from the Caspian, from North and West Africa, and from Asia. One regular contributor to the oil and gas industry discussion here in the Motley Fool noted that "Triton at $39 is once in a lifetime". The stock closed the week at $39 3/4 after dropping to a 52-week low of $38 5/8 on Thursday. Absolutely nothing has changed in this company's growth prospects and various independent estimates of its proved and probable reserves range as high as the low 100s. My own estimates of Triton's net asset value, based on updated proved and probable reserves that the company announced in January, is $85 a share. Chesapeake Energy is aggressively pursuing its growth strategy to become one of the premiere exploration and production companies in North America. Like many of its peer companies which have sought attractive financing at current rates, Chesapeake just completed an offering of $300 million in new debt, including $150 million with a seven-year maturity at 7.875% coupon and $150 million with a 15-year maturity at 8.50%. The company is now choosing to expand its drilling operations in the Louisiana trend from 10 operating rigs to 20 and to make selected increases in investment in other areas. Last Thursday the company announced its latest successful well in the Louisiana Austin Chalk. The Lawton 4 #1, located in the Masters Creek portion of the Louisiana Trend, tested at a daily rate of 4,224 barrels of oil and 13.0 million cubic feet of natural gas, Chesapeake owns an 81% working interest in the well with Union Pacific Resources Corporation owning 12%, Exxon Company, USA owning 4%, and private investors owning 3%. The well should begin producing into permanent production facilities within a week. Wells like this one are actively being completed in the Louisiana trend by Chesapeake, UNION PACIFIC RESOURCES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UPR)") else Response.Write("(NYSE: UPR)") end if %>, and others, with substantial positions in the play. Union Pacific also announced that it will be doubling the size of the Masters Creek processing plant and will double the number of its drilling rigs in the Louisiana trend from 6 to 12. The area has been, and will continue to be, one of the hottest drilling plays in the onshore arena. But Chesapeake is clearly the company which offers the most attractive exposure to the growth potential from the play. OTHER NEWS TRANSTEXAS GAS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TTXG)") else Response.Write("(Nasdaq: TTXG)") end if %> reported two successful wells in a new operating area in South Texas. The Hoskin Fee No. 1 well in Live Oak County logged 26 feet of pay in the Wilcox formation after being drilled to a depth of 13,100 feet. In Goliad County, the Strong G.U. No. 1 well logged 79 feet of Wilcox pay in 5 zones. Completion on both wells is currently under way. The company also reported that it has amassed approximately 42,000 acres in leases in Wharton County, Texas. The discoveries are part of an ongoing expansion of reserves outside the company's traditional Lobo Trend area in South Texas. BP and EXXON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: XON)") else Response.Write("(NYSE: XON)") end if %> announced a significant deepwater discovery known as "Hoover". The discovery is expected to contain a minimum of 100 million barrels of oil. The discovery is in a water depth of 4,795 feet. BP and ATLANTIC RICHFIELD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ARC)") else Response.Write("(NYSE: ARC)") end if %> indicated discoveries have been made in two wells at their Tarn prospect in Alaska. In a third announcement, BP and CHEVRON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CHV)") else Response.Write("(NYSE: CHV)") end if %> announced they are considering the possibility of developing a potentially 100 million barrel discovery in Alaska at the edge of the Alaska National Wildlife Refuge. An additional test well will be drilled to assess the profitability of a development. In the meantime, the companies are discussing the project with the federal government to ensure there is no harm to the environment in the sensitive area. UPDATE ON COMMODITY PRICES Oil prices strengthened during the week, encouraging commodity traders to believe that there is downside resistance building at $20 per barrel. Prices dropped mid week under the $20 mark but rapidly recovered to close the week at $21.29 per barrel. Natural gas prices remained weak throughout the week and traded within a several cent range between $1.93 and $1.98 before closing the week at $1.96. The mid week AGA report indicated that the gas storage level as of March 7 was 740 bcf, after withdrawals of 57 bcf for the week. Levels remain about 25% over last year, but are still expected to finish the season at their second lowest level of the decade. WEEKLY RECAP This Week Year to Date Wildcat 20 Expl/Prod Cos. -2.42% -10.77% DJ Major Integrated Oils +0.13 +3.61 DJ Secondary Oils +0.31 -7.09 DJ Drillers +0.43 -3.08 DJ Service and Equipment +1.39 +8.40 Dow Jones Industrial Ave. -0.93 +7.56 S&P 500 -1.47 +7.08 Company Symbol 1/1/97 This Week Week Year Price Price Change Change British Petro BP 141 3/8 135 1/2 -1.36% -4.16% Texaco TX 98 1/8 101 1/4 -1.70% 3.18% Santa Fe SFR 13 7/8 13 1/2 -2.70% -2.70% Apache Corp APA 35 1/8 33 1/8 -2.21% -5.69% Anadarko Pet APC 64 3/4 57 -0.87% -11.97% UnionTexas UTH 22 3/8 19 5/8 2.61% -12.29% Triton Energy OIL 48 1/2 39 3/4 -5.07% -18.04% Arakis Energy AKSEF 3 5/16 3 15/32 -12.60% 4.72% Ranger Oil RGO 9 7/8 9 1/8 1.39% -7.59% Rennaisance RES.T 46.65 40.25 -1.95% -13.72% $Can Forcenergy FGAS 36 1/4 25 3/8 -3.79% -30.00% Chesapeake Engy CHK 27 13/16 21 -2.33% -24.49% Belwether Expl BELW 7 7/8 10 11/16 6.88% 35.71% Benton O&G BNTN 22 5/8 16 7/8 -1.82% -25.41% Swift Energy SFY 29 7/8 23 1/4 -4.62% -22.18% TransTexas Gas TTXG 14 1/2 14 1/8 -4.24% -2.59% Louis Dreyfus NG LD 17 1/8 15 5/8 -3.10% -8.76% Comstock Rescs CRK 13 8 3/8 -12.99% -35.58% Saba Pet SAB 25 1/4 19 1/4 0.00% -23.76% Vintage Pet VPI 34 1/2 31 0.00% -10.14% Avg -2.42% -10.77%

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