Raymond James Energy Daily Update

----- Forwarded by Stanley K Horton/HOU/Dynegy on 02/21/02 08:13 AM -----

Matthew Burrus
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com< cc:
Subject: Raymond James Energy Daily Update - Thursday 2/21/02
02/21/02 08:10 AM

Thursday 2/21/02
Raymond James Energy Daily Update

FOR INTERNAL USE ONLY

Energy Price Summary (Close Wednesday 2/20/02):
Oil (WTI) - $20.29, down $0.59
12-Month Oil Futures Strip - $20.63, down $0.52
Natural Gas (HHUB) -$2.39, down $0.01
12-Month Natural Gas Futures Strip - $2.75, unchanged
1% Residual Oil (on a Mcf basis) - $2.55, up $0.03
London Crude Oil - $20.20, up $0.34 (so far this morning)

1) AGA reports in-line injection, gas prices surge show strength on cold
weather forecast/short covering
Last week, 112 Bcf was withdrawn from storage, compared to 81 Bcf
last year and expectations for a 115-120 Bcf withdrawal.
Total storage is now 1,944 Bcf, which is 960 above last year.
This week's report showed 4-5 Bcf/d less gas available for storage
relative to last year on a weather-adjusted basis.
The near-month (March) futures contract showed some strength this
week, after the National Weather Service (NWS) forecasted
colder-than-normal weather in several key consuming regions during
the next 2 weeks. Additionally, short covering by traders probably
added to the positive momentum. The contract traded as high as
$2.46/MMBtu this week, before slipping to $2.40/MMBtu after the AGA's
report.
To reach 1,500 Bcf of gas in storage by the end of the traditional
withdrawal season, approximately 74 Bcf/week would have to be pulled
from storage on average over the last six weeks. This compares to
approximately 56 Bcf/week withdrawn during the same period last year
under normal temperatures. As a result, of the NWS's forecast is
accurate, we could still hit the 1,500 Bcf mark. However, if weather
remains 15-20% warmer than normal, the probability of withdrawing
that much gas decreases substantially.
Longer-term, we continue to believe that natural gas fundamentals
will be a supply driven equation. Based on fourth quarter production
volumes reported so far, it appears that U.S. natural gas production
will, in fact, show both sequential and year-to-year declines.
Despite the potential for near-term weakness in prices, we remain
bullish on the intermediate and longer-term fundamentals for natural
gas.

2) The American Petroleum Institute (API) reported that total petroleum
inventories decreased 5.5 MMBbls to 673.6 MMBbls for the week ended
February 15, 2002.

? The consensus range called for a 0.7 MMBbl build to a 2.4 MMBbl
build. This is a bullish report for the oil market. Total petroleum
inventories are currently 73.5 MMBbls (~12%) above levels one year ago.

? Crude oil inventories decreased 4.5 MMBbls to 316.2 MMBbls last
week. Crude oil inventories are 37.5 MMBbls above last year at this
time. Based on our current U.S. crude oil demand estimate, there are
approximately 17 days of crude oil inventory.
Motor gasoline inventories increased 0.6 MMBbl to 218.2 MMBbls last
week. Motor gasoline inventories are 13.0 MMBbls above last year at
this time.

? Distillate fuel inventories decreased 1.6 MMBbls to 139.2 MMBbls
last week. Distillate inventories are 23.0 MMBbls above last year at
this time.

? U.S. refinery operations were at a 88.5% utilization rate, which
was 0.7% higher than last week's 87.8% rate. Total Petroleum imports
decreased to 10.4 MMBbls/day.
Despite last week's larger than anticipated draw in total petroleum
inventories, the slowdown in U.S. economic growth that was
exacerbated by the September 11 terrorist attacks has continued to
weigh on demand and contribute to inventory levels that remain well
above our 5-year average.

OILSERVICE

3) BJ Services Announces Another Strategic Acquisition.
? Yesterday, BJ Services (NYSE:BJS/$30.03/Strong Buy) announced
that it has signed a definitive merger agreement with OSCA, Inc.
(NASDAQ:OSCA/$27.65) for $28 per share (a 27% premium to the
pre-announcement stock price). This all-cash deal equates to a total
purchase price of roughly $420 million and is expected to close by the
end of the second calendar quarter.

? OSCA provides a full array of completion-related products and
services, including completion fluids, completion tools and completion
services. BJ should ultimately be able to leverage the incremental
products, services and markets across its existing asset and customer
base to yield significant pull-through revenue opportunities down the
road. While it appears that BJ paid a full price for OSCA, the
combination makes a lot of strategic sense.

? Following the announced acquisition, we are making slight
modifications to our near-term estimates. Specifically, we are shaving
a nickel from our existing FY2002 estimate, bringing it down to $1.25
per share. This is primarily due to the closing of the acquisition
without significant near-term cost savings or pull through benefits. As
management indicated on its conference call, it expects the deal to be
accretive to the FY2003 consensus of $1.85 per share by $0.06 to $0.07
per share. Since we are already in print at $2.00, we are leaving our
FY2003 estimates unchanged in order to be conservative. Given the
expected slight accretion to FY2003 earnings, combined with potential
longer-term upside and an improving market outlook, we are maintaining
our Strong Buy rating and 12-month target price of $37 per share.

4) Tetra Technologies beats consensus by a penny and appears extremely
undervalued relative to its peers!
Following yesterday's acquisition of OSCA by BJ Services, it is even
more clear now that Tetra Technologies (NYSE:TTI/$23.62/Strong Buy)
is cheap.
Specifically, OSCA was purchased for between 30-35x 2003 EPS, or
12-14x 2003 EBITDA.
If we apply those multiples to TTI, we come up with a value of $45 to
$55 per share, as opposed to the current price of $23.62 per share.
The TTI story is very similar to that of OSCA, only perhaps not as
well known.
Following OSCA's acquisition, there remains a chance that TTI could
be taken out at some point in time (although we have no reason to
believe it will be soon).
Furthermore, TTI stands a chance of gaining business as a result of
this transaction.
Finally, the company reported fourth quarter EPS of $0.35 per share,
a penny above consensus. It will host a conference call today at
10:30am ET. The dial in number is 800-860-2442.

5) Unit Corp. handily beats fourth quarter earnings expectations
? Unit Corp. (NYSE:UNT/$12.60/Strong Buy) reported fourth quarter
earnings of $0.27 per share, compared to $0.43 per share in the fourth
quarter of 2000. This result was $0.04 ahead of the consensus estimate
of $0.23 per share.

? Revenues for the quarter came in at $49.3 million, down
approximately 25% from last year and down 28% from the third quarter.
Likewise, overall operating margins were down over 530 basis points
year-to-year to about 50%, while they were also down a like amount on a
sequential basis.

? The strong quarterly results were largely a result of
stronger-than-expected dayrates, utilization and margins during the
quarter. In fact, average dayrates were down by only about $800 to just
under $10,200 per day. Meanwhile, average realized oil and natural gas
prices reflected the current softer commodity price environment with
declines on a year-to-year basis of 41% for oil and 61% for gas.
Production volumes also decreased from last year by 2% for oil and 15%
for natural gas.

? Despite the generally strong results, drilling activity has
fallen dramatically over the past couple months. This drop in overall
rig activity has had a significant impact on Unit's utilization,
dropping from a quarterly average of nearly 71% rigs in Q4 to the
current run-rate of 60%, pulling dayrates down another 10-15% currently.

? Due to declines in the near-term outlook for drilling and
production, combined with Unit's current activity indicators (dayrates,
utilization, production and commodity prices), we are adjusting our
quarterly estimates but keeping our annual estimates. Accordingly, we
are maintaining our 2002 estimate of $0.80 per share and our 2003
estimate of $1.40 per share. Despite the lack of near-term visibility,
the improving long-term outlook causes us to maintain our Strong Buy
rating with a 12-month target price of $18 per share (based on a blended
average of three valuation techniques).

6) Conrad Reports Very Disappointing Quarterly Loss
Conrad Industries (NASDAQ:CNRD/$4.10/Strong Buy) reported its fourth
quarter of a loss of $0.02 per share, compared to a profit of $0.10
per share in the fourth quarter of 2000. This results missed the
consensus estimate by $0.14 per share.
Revenues for the quarter came in at $9.9 million, which was down 11%
from this same quarter last year and down 23% from last quarter. The
gross margin for the quarter was 13.8%, which was down over 800 basis
points from the year ago period and down almost 800 basis points
sequentially.
The backlog at quarter-end stood at $10.4 million, down 49% from the
fourth quarter of 2000 but up 4% from last quarter.
The Company blamed the poor quarterly performance on weakness in the
economy and offshore oil and gas industry.
The Company will host a conference call at 10:30am ET this morning.
You may access the call by dialing 800-966-6502. A replay will be
available by dialing 800-677-6200 and using access code 2280.

E&P

7) AEC Beats 4Q Expectations, EnCana Merger On Track
AEC (NYSE:AOG/Strong Buy) reported fourth quarter 2001 EPS of C$0.55
per share, which was ahead of our estimate of C$0.40 per share.
AEC achieved record sales averaging 356,000 Boe/d, up 20% from 2000.
Each of the three growth platforms - Canada, the U.S. Rockies and
Ecuador - set new records.
In 2001, AEC's established conventional reserves rose by 15% to
nearly 6 Tcf of gas and more than 600 million Bbls of oil and natural
gas liquids. The Company replaced 276% of 2001 conventional sales,
with 89% of the reserve additions coming through the drill bit. The
largest reserve additions were in the U.S. Rockies and northeast
British Columbia.
The merger with PanCanadian remains on track with shareholder's
meetings scheduled for early April and closing expected shortly
thereafter.
Alberta Energy's merger with PanCanadian Energy to form EnCana will
create the largest and fastest growing super independent producer in
the industry with a C$27 billion enterprise value and visible
production growth in excess of 14% annually for at least the next
five years. The combined company will have a dominant position in
North America with interests in western Canada, the U.S. Rockies,
offshore Eastern Canada and the Gulf of Mexico, as well as 23 million
undeveloped acres along the Rocky Mountain Fairway from southern
Colorado to Alaska. EnCana will also have large international growth
engines in Ecuador and the North Sea.
Our target price of C$80 (US$52) is based on a 6.1x multiple of 2002
cash flow, a valuation comparable to that of its super independent
peers. We reiterate our Strong Buy rating.

8) Pure Posts Stronger Than Expected 4Q Results, Reduces Capital Budget
for '02.
Pure Resources (NYSE:PRS/$19.90/Strong Buy) reported 4Q:01 EPS of
$0.00 per share, which was significantly higher than our estimate of
a loss of ($0.17) and the consensus estimate of ($0.13).
PRS's production during 4Q:01 totaled 390 Mmcfe/d, up 70% from the
same period last year, including acquisitions made during 2001, and
up 85% for the full year. However, the company lowered 2002 volume
guidance from 12% growth to 9% growth based on a reduced capital
spending program. As a result, we have lowered our 2002 earnings
estimate from $0.32 to $0.31 per share to reflect the reduced
expectations.
Additionally, we are initiating 2003 EPS and CFPS estimates of $1.12
and $6.30, respectively, based on 11% production growth from 2002 to
2003 and average commodity prices of $3.75/Mcf of gas and $26.00/Bbl
of oil.
The Company replaced 385% of its production from all sources at a
cost of $1.82/Mcfe, and increased its total reserves by 34% to 1,469
Bcfe.
We are maintaining our Strong Buy rating on shares of Pure. Through
experience, operational focus and the application of newer
technology, Pure has the opportunity to create significant value in
the "mature" Permian Basin. Our target price of $24 is based on a
5.3x multiple of 2002 cash flow, a valuation justified by the
Company's geographical focus and operating leverage in the Permian
Basin.

9) XTO 4Q Results In-Line With Expectations.
? XTO Energy (NYSE:XTO/$17.10/Strong Buy) reported 4Q:01 EPS of
$0.42, which was in-line with our estimate of $0.41 and consensus of
$0.40.

? XTO's production during 4Q:01 totaled 565 Mmcfe/d, up 20% from
the same period last year and up 17% for the full year.

? Additionally, we are initiating 2003 EPS and CFPS estimates of
$2.19 and $5.27, respectively, based on 12% production growth from 2002
to 2003 and average commodity prices of $3.75/Mcf of gas and $26.00/Bbl
of oil.

? During the conference call, XTO mentioned that it may make an
acquisition in lieu of a portion of its organic production growth
through the drillbit. More specifically, XTO may forego a portion of
its East Texas drilling budget and use $100-150 million towards an
acquisition. Either way, XTO is expected to achieve its 17-20%
production growth target.

? XTO has a multi-year inventory of development opportunities in
the low-F&D cost Arkoma and San Juan Basins, as well as the East Texas
Freestone and Bossier Trends. For an E&P company, XTO has a
large/diverse asset base, substantial project inventory, and multiple
productive zones in its core producing areas. We are maintaining our
Strong Buy rating on shares of XTO based on the company's ability to
generate consistent double-digit production growth. Our target price of
$24 is based on a 6.5x multiple of 2002 cash flow, a valuation justified
by the company's consistent and visible growth.

Raymond James Energy Group

This was prepared for informational purposes only and intended for
internal use only. Information contained in this report was received
from sources believed to be reliable. Raymond James & Associates
assumes no liability for inaccurate or erroneous information.
Additional information can be obtained by calling the Houston Energy
office at (800) 945-6275.