Renaissance spirit Ltd (Renaissance...

Renaissance spirit Ltd (Renaissance) is a senior Oil and Gas (O&G) farmer that focuses its exploration and evolution activities in the Plains area of Western Canada.

Note: For propel information about how to inquiry O&G producers, please refer to the article, "Guidelines for Studying Oil and Gas Producers" (May/June 1994 issue of Canadian Shareowner).

PICTURING HISTORICAL GROWTH

Revenues

As indicated in the accompanying Guide, the average annual combine rate of growth in incomes during the 1985-1994 study period was approximately 39% Essentially, this shooting can be attributed to the exceptional of the same height of production growth--averaging in exces of 40% during the same time period. Production vegetation is plotted on the Guide and labelled as "BOE/d" (Barrel of Oil Equivalent by means of day).

CFPS

Since 1985 fully-diluted cash deliquesce per share before unusual items (CFPS) has grown at an average, annual unite rate of about 25%. The difference between the receipts and CFPS growth since 1991 is essentially the spring of varying degrees of cash melt dilution from stock issues in each of the last four years.

JUDGING hereafter GROWTH

When studying O&G farmers investors are generally encouraged to direct the eye for companies with a greater proportion of lighter gravity oils (28 API) because they command better prices than heavier gravity oils. However, during the last tie of years, expansion and changes in overall oil refining capacity have increased demand for medium gravity (mid 20 API) raws Renaissance produces mostly medium gravity oils, and as of that kind has experienced improved pricing appropriate to this change in demand.

At the last of 1994, Renaissance had more than doubled its pure land position to over six million acres. The average working interest has risen from one side the years and currently stands at 97% Renaissance has experienced high something reserved growth during the study period. This can be attributed largely to Renaissance's ability to consistently achieve product in revenues and earnings on remaining focused on its objectives.

As stated in its 1993 annual report, Renaissance's business plan includes the following goals: (1) to operate exclusively in the Plains area of Western Canada; (2) to maintain direct curb of all operations as operator; (3) to maximize ownership of all foreseeings (ideally 100% ownership); (4) to emphasize exploration to generate growth; and, (5) to unfold a strong, highly motivated, entrepreneurial staff.

Management has indicated a in extent term commitment to this strategy.

Efficiency of Operations

Part 2(1) of the Guide indicates that Renaissance's operating profit margin (OPM) (see pages 26-27 of the Stock Selection Manual) has decreased from approximately 28% during the first five years of the thought period to approximately 24% during the greatest in number recent five year period. Readers should note that the OPM used for O&G farmers is equivalent to the "operating netback minus administrative expenses"

Generally, the company's cost growth has remained under manage Most expenses, as a percentage of gros rewards remained relatively stable or experienced slight declines during the contemplation period. However, the royalty holidays that were granted for several years following the initial oil price fall suddenly in 1986, reduced this expenditure substantially in the first five years of the investigation period.

By mid-1994, virtually all of the company's qualifying wells had used-up the royalty holiday and were bearing the normal royalty burden

Debt Financing

Part 2(2) of the Guide lists obligation to cash flow ratios for the 10 year cogitation period. For oil and gas agriculturists the leverage ratio is best set forthed as:

Total Long-Term Debt (at the beginning of a fiscal year)/Expected Annual Cash emanate (during the fiscal yea

Generally, O&G agriculturists with this leverage ratio les than or equal to 15 are considered to have a provident reliance on debt. The Guide present to views that Renaissance has consistently regarded this industry benchmark, averaging just in subordination to 1.0 over the last five years. Maintaining this exemplar of financial flexibility in an industry with volatile commodity prices has always been a financial priority for Renaissance's management. of the like kind financial flexibility allows the company to conduct its plans without serious question s when the commodity price environment is uncooperative.

Effectiveness of Operations

Part 2(3) of the Guide muses management's ability to earn an adequate rate of revert on shareowners' common equity (ROCE) (see pages 27-29 of the Stock Selection manual). Generally, Renaissance has experienced ROCE in the 7-9% range. This is not unusual in the oil and gas business where, appropriate to the high value of non-cash items similar as depletion and depreciation, it would be considered exceptional to experience ROCE in exces of 10% In addition, Renaissance has had equity issues each year from 1991 to 1994 inclusively which have had a slight dilutive force on ROCE, EPS, and CFPS

STUDY POTENTIAL: THE "BUY" & "SELL" ZONES

Two establishs of illustrative judgements about Renaissance's development prospects during the next five years-and the market's possible valuation of them-are ruminateed in the accompanying Guide.