The following recommendations-either positive or negative-are strictly the opinion of the analysts or brokerages noted, which may have an interest in the stock. The analyst's choice does not necessarily reflect the opinion of Oil and Gas Investor, nor does this magazine play any role whatsoever in the selection process. Union Pacific Resources (NYSE-UPR) Union Pacific Resources' record of value creation through exploration and development drilling is one of the best among independents, says William A. Featherston, vice president and E&P analyst for Schroder & Co. in New York. Featherston expects this performance to recapture headlines, now that the burden of the high price and poor timing of the Norcen acquisition is behind the company. "We are initiating coverage of UPR with a '1' rating and adding it to our recommended list, with a 12-month price objective of $23 per share," Featherston says. Spun out of Union Pacific Corp. in 1996, Fort Worth-based Union Pacific Resources is a large-cap E&P company with the third-largest domestic reserve base among U.S. independents. UPR expanded in 1998 through the acquisition of Norcen Energy Resources Ltd., a Canadian independent with assets concentrated in Canada, the Gulf of Mexico, Guatemala and Venezuela. Norcen, which operates now as a subsidiary of UPR, also has mining interests within and adjacent to UPR's land grants in Wyoming, Colorado and Utah. At year-end 1998, UPR had 6.12 trillion cu. ft. equivalent (Tcfe) of proved reserves. "After misstepping by overpaying for Norcen last year, UPR has a new chief executive officer, George Lindahl-a move that should be well received by the investment community, given Lindahl's past leadership in generating high returns for the company through drilling," says Featherston. "With its return to a successful strategy of growth through the drill bit, UPR should resume its superior record of value creation." UPR has identified more than 2.5 Tcfe of high-risk/high-reward exploration targets to be drilled during the next six months, including its Frontier play in Wyoming, a significant wildcat in Guatemala, two deepwater Gulf of Mexico exploratory tests, and several deep onshore Gulf Coast wells in South Louisiana and South Texas. The company is also the undisputed leader in the central Texas Austin Chalk Trend that accounts for 22% of UPR's production and 12% of its reserves. Says Featherston, "While investor concern has focused on the short reserve life of the Chalk, we believe that this play's attractive returns and flush production provide ideal operating leverage to the bullish part of the commodity-price cycle." The play-which UPR is only halfway through developing-should throw off roughly $100 million in free cash flow annually to help fund the company's higher-risk/higher-reward exploration efforts elsewhere, Featherston adds. UPR's debt-reduction program during the past 12 months has removed its balance sheet from peril. "The company has completed more than $2 billion of asset sales, including the $1.36-billion sale of its gathering, processing and marketing (GPM) business, which has reduced UPR's debt load to more reasonable levels. We estimate that the company will reach its debt target of $2.9 billion by year-end 1999, with an estimated $400 million of further debt reduction to come in 2000." UPR's enterprise value is now 4.8 times our 2000 EBITDX [earnings before interest, taxes, depreciation and exploration expenses] estimates, compared with its historical multiple of 6.4, says Featherston. Based on price-to-liquidation value, UPR is trading at an 0.98 multiple, versus an historical multiple of 1.3 and a peer group average multiple of 1.27. The analyst says, "Union Pacific Resources offers the most attractive valuation relative to its peers and to its own historical multiples." Note: Analysis took place 9-28-99 when UPR closed at $15.38 per share and was reaffirmed 11-18 when at $15.13. Currently, 252 million shares are outstanding. The recent 52-week price range was $19.38-$7.68. Southwestern Energy is an underfollowed gas play with a good production profile,says Kenneth H. Beer, partner and senior E&P analyst for Johnson Rice & Co. in New Orleans. The firm has initiated coverage of Southwestern with a Buy rating. Founded 70 years ago, Fayetteville, Arkansas-based Southwestern is an integrated natural gas company whose utility segment serves 179,000 customers in Arkansas and Missouri. Also engaged in gas marketing and transportation services, SWN currently owns a 25% interest in the 749-mile Ozark Pipeline System. Currently, it intends to sell its Missouri gas utility business, with about 38,000 customers, to Dallas-based Atmos Energy Corp. SWN, which began an E&P program in the 1940s to serve its utility, is refocusing its business, to upstream activity. At year-end 1998, the company reported proved reserves of roughly 345 billion cu. ft. equivalent (Bcfe)-86% proved developed. "During the past 18 months, Southwestern has shifted its attention and resources to E&P operations, versus its utility focus of the past," says Beer. "This change in stripes has not been fully appreciated by Wall Street. But as investors begin to recognize the company's significant exploration exposure, its backlog of exploitation projects, and the impressive E&P team it has built up, the stock should attract more attention." Completely overhauling top management, the company in 1997 hired Harold Korell, now SWN's chief executive officer. He brings to SWN 31 years of E&P experience with American Exploration, McCormick Resources, Tenneco and Mobil. Also, SWN hired Alan Stevens as head of E&P operations. Stevens has 32 years of upstream experience, with Petsec Energy, Occidental Petroleum, Exxon and Tenneco. Since their arrival, the two have replaced all of SWN's exploration group and half its technical staff with E&P people that have an average 20 years experience in SWN's core operating areas. Within those core areas-the Arkoma and Permian basins, the Midcontinent, and the Texas and Louisiana Gulf Coast-the company has assembled a balanced mix of development and exploration projects, the analyst says. The exploration projects alone, in South Louisiana and the Texas Gulf Coast, are estimated to have net unrisked reserve potential of 300-plus Bcfe. SWN will be drilling a number of these "home run" prospects during the next 18 months. Says Beer, "Given this asset base, management's objective is to grow production and reserves about 10% annually while generating $1.30 of value for each dollar invested." Relative to other midsize E&P stocks, SWN is undervalued, says Beer. "The stock is trading at a 20% discount to our estimated net asset value of $11.05 per share and at only 3.5 times estimated 2000 cash flow. Moreover, there is hidden value in the company's utility assets, storage facilities and real estate that could push that NAV well above $11.05." Note: Analysis took place 9-7-99 when SWN closed at $8.94 per share and was reaffirmed 11-18 when it closed at $7.94. Currently, 25 million shares are outstanding. The recent 52-week price range was $11-$5.18.

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