Energy Prospectus

I am updating the profile for AREX and I will be attaching it to a Flash Alert soon.

I notice that AREX has been trading in a channel ($22.50 to $27.00) for about ten months and the share price is now very close to the bottom of the channel. My Fair Value Estimate is $31.00 and First Call's price target is $31.72. The fundamentals and technical indicate that $23/share is a very good price to add this one.

AREX's revenues should be up slightly in Q3, primarily because of higher oil prices. I am forecasting a significant increase in production during the 4th quarter and a strong year-end reserve report. They have a lot of running room in the Permian Basin and I can see 5% to 10% production growth per quarter beginning in Q4.

An updated Net Income & Cash Flow Forecast model for AREX has been posted under the Watch List Tab.

Keep in mind that AREX uses the Successful Efforts method of accounting, which is very conservative (compared to the Full Cost Method). Therefore, it is even more important to focus on cash flow per share.

First Call's price target is $31.72 and my Fair Value Estimate is very close to that number.