EPEX

**crackdown** Tue Jul 24, 2007 3:07 pm

EPEX
blast,

I was wondering if you had any opinions on EPEX. The stock is trading at 90% of book value and at about 50% of a 5 year forward intrinsic value. It also has a large amount of free cash flow.

Do you like this company? Thank you for any insights.

**blast_investor** Tue Jul 24, 2007 11:58 pm

Hi crackdown,

As you probably aware of, I am quite bullish on the whole gas and oil sector for the long run.

However, I should say that by quick checking, I don't like this oil gas stock Edge Petroleum (EPEX). My take is to avoid this stock.

Usually, price to book ratio is pretty important metrics because book value is a quasi proxy for asset value of a company. However, for oil or gas stocks, book value lost its relevancy because the main asset of oil/gas stock is its oil/gas reserve value, which usually are not captured in book value.

EPEX is a relatively small company with non-impressive operating performance. For example, in recent quarter, its daily production year over year increased 33%, very good number to show. However, if you check the share count, the total share count increased 44% year over year.

This means that for the last 1 year, the company spend large amount capital dollar for acquisition or drilling, but per share production dropped year over year. The growth projects destroyed shareholders' value for last 1 year. The company did not pay dividend or buy back shares, all its profit was spent on growth. But the end result is, it had negative growth for shareholders. This was very bad result.

If oil/gas was in down cycle, EPEX performance was understandable. But last year oil or gas price were still at historical high level, and many oil/gas stocks had huge earnings or production growth in comparison.

**crackdown** Wed Jul 25, 2007 7:47 am

Thank you very much for your insights on all 3 of my stock questions. They have been very helpful. :)