PanCanadian Energy Value Intact Despite Executive Turmoil

A surprise announcement on Sunday morning, October 14, 2001, tells of the resignation of CEO David Tuer for personal reasons.  He will be replaced by David O'Brien, a predecessor and driving force in PanCanadian and recently in the reorganization of former 85% owner, Canadian Pacific.  We respect both leaders and are curious along with most investors as to the explanation behind the unexpected development. 

While PCX stock has done well we believe it has potential to appreciate further.  We would be especially alert to any stock price weakness as investors react to the executive change or to the earnings scheduled to be released imminently.  The stock's low unlevered cash flow multiple of 6.2 times is less than 7 times that BR is paying for a peer company and it is lower than 9 times for the largest energy companies.

Our case for PCX rests on its large contiguous land base with low operating costs, low royalty and low transportation costs.  On top of that the company has unusual exploration potential offshore Nova Scotia and offshore Old Scotia (Scotland) where further drilling is underway.  Finally, the reorganization of historical 85% owner, Canadian Pacific, is complete.  As a result PCX is the newest $7 billion exploration company trading on the New York Stock Exchange.