Stephen Smith Energy Associates

                                                        Energy Investment Research

Background

Stephen Smith Energy Associates was founded in 2001 by Stephen A. Smith.  As an equity research analyst for fifteen years (Dain Rauscher Wessels, Bear Stearns)   Mr. Smith has covered both the major oils and the exploration and production companies.  He received Wall Street Journal All-Star recognition at each firm, with recommendations cited both for stock performance and earnings estimate accuracy. 

Previous to joining Bear Stearns, Mr. Smith was a Senior Vice President for  Data Resources, an economic analysis and consulting firm specializing in the development and application of econometric models.   In this position Mr. Smith directed the 30+ member staff of the Data Resources Energy Service, testified on energy issues before Senate/House committees, and provided expert witness testimony before  regulatory/legislative groups.  In 1985 he  was invited to speak on energy issues at a meeting of President Reagan’s Council of Economic Advisors.  In 1986, he served as a member of the demand sub-committee for the National Petroleum Council's U.S. Oil and Gas Outlook.

Earlier in his career Mr. Smith held engineering  positions with Shell Oil,  Mobil Oil and Bonner & Moore Associates.  He holds a B.S. degree in chemical engineering from the University of Notre Dame and an M.S. degree in operations research from Cornell University.

Sheila Smith Svoboda will provide consulting services as an economist. Sheila holds degrees in economics from Wellesley and the University of Virginia and has completed her course work towards a doctorate in economics.  She was employed with Standard and Poors' DRI for several years, serving as director of one of their economic outlook services in the later years of her tenure .

Mission

Stephen Smith Energy Associates attempts to fill a niche in the energy/financial analysis marketplace.  We differ from traditional "Wall Street" analysts in several important ways.  Having spent fifteen years as a sell-side analyst, we know many competent analysts in the business.  Unfortunately, much of the analysis is built on a structurally flawed foundation.

The first structural flaw, investment banking bias, is legendary.  The second flaw, equally familiar, is the pressure to do anything to "stir the pot" to generate daily trading activity.  This explains the compulsive focus, merited or not, on transient short-term issues. 

We will strive not to succumb to the standard Wall Street approach.  We will not be issuing Buy or Hold ratings, or focusing on quarterly earnings estimates.  We will be focusing on who has created value historically (and for what reasons).  This should be a necessary but not sufficient first step in attempting to forecast who might best be able to create value in the future.  We will be analyzing company quarterly reports, but only as one component of the overall information flow, to extract information that relates to long-term per-share value growth.

One of our key focus areas will be improved valuation methodology.  While earnings are clearly essential for the long-term health of an E&P company, EPS multiples are usually very poor comparative valuation tools.  These have properly given way to cash flow and more recently EBITDAX multiples as steps in the right direction.  The use of normalized price decks is yet another improvement.  Still, price-normalized EBITDAX multiples for the “year ahead” are cumbersome tools  for differentiating value. We plan to place more emphasis on historical and projected growth in NAV per share (using constant historical (pro forma) and alternative scenarios for projected oil and gas prices.