TRISTAR OIL & GAS LTD.

Energy Processing Canada, Jan/Feb 2008 by Strand, Rick

The fact that Energy Processing Canada is an oil and gas publication does influence the choice of investments highlighted in this column, but I try to choose sustainable oil and gas investments with a management's record to add shareholder value. The measuring criteria will be different for a royalty trust than junior oil and gas shares and different again for service companies and trusts. The guiding principles are the same:

* Does the management team have a record of adding good value for the investor?

* Does the investment represent the top 10% of the comparable investment type?

* Does the investment have the ability to thrive in an adverse commodity environment?

* Would I recommend it to my sister?

The three things to consider when choosing an intermediate oil and gas producer are: cost-effective production, reserve growth and base commodity price. These intermediates add share value by growing production, just like the juniors, but as production grows their share price is affected by the base commodity price.

FIVE KEY POINTS TO CONSIDER:

1. Management's experience at adding cost-effective reserves and production through the drill bit and acquisition - Have they done it before? Is the exploration and development team experienced in the company's core operating areas?

2. Finding and development (operating) costs of reserve and production - Cost of adding production and reserves.

3. Reserve life - Do the new reserves reflect long-life reserves? It is important that growth is in both production and reserves, not just production.

4. Land base - Shows the inventory available to replace present production and increase reserves. Is it in the core area(s)? Will it supply long-life reserves and long-term production?

5. Operates in core areas - By maintaining a focus on core areas, the firm is able to contain costs and operate more wells; it is also easier to sell concentrated assets.

My choice is: TriStar oil & Gas Ltd. (TOG on the TSX)

TriStar commenced operation in January 2006 as a result of an arrangement involving StarPoint Energy Trust and Acclaim Energy Trust. This arrangement resulted in the trust assets being placed in Canetic Energy Trust and the exploration assets in TriStar Oil & Gas.

* 52-week high: $14.47; 52-week low: $6.00.

* BMO Nesbitt Burns target: $18.50.*

* Cash flow per share target for 2009: $3.44.*

* Shares outstanding: 109.9 million.*

* 2008 exit production guidance: 21,750 BOE/d. *

* Earnings positive 2008(e): $.52; per share 2009 (e): $.88 per share.*

KEY PARAMETERS

1. The management team, which has successfully added shareholder value in the past, brings with it years of experience in the types of formations that are now TriStar's core areas.

2. Declining costs per BOE 2008(e): $14.36; 2009(e): $11.98.*

3. Reserve life: > 8.5 years.*

4. TriStar has 95 net sections of Bakken land representing 372 net drilling locations. More than 90% of the company's 2008 budget is dedicated to light oil. Its 2008 land holdings are approximately 780,000 acres.

5. TriStar's core area is the Bakken in southeast Saskatchewan, where the royalty environment is better than Alberta's. The company's production is 75% light oil and 25% natural gas.*

* Statistics from by BMO report of January 17, 2008.

TRISTAR'S MANAGEMENT TEAM INCLUDES:*

* Brett Herman, CA - President and Chief Executive Officer: A chartered accountant with extensive oil and gas experience, Mr. Herman was the Vice President, Finance and CFO of StarPoint Energy Ltd. from September 2003 until January 2005 and StarPoint Energy Trust until January 2006.

* Jason Zabinsky, CFA - Vice President, Finance and Chief Financial Officer: Mr. Zabinsky has extensive capital market experience, most recently as a Director with a major Canadian Investment and Corporate Bank.

* Graham Kidd, P.Eng - Vice President, Engineering: Mr. Kidd was the Vice President, Corporate Development of StarPoint Energy Trust from February 2005 until January 2006.

* Eric Strachan, P.Geol - Vice President, Exploration: Mr. Strachan joined StarPoint Energy Ltd. in February 2004 as a senior geologist and held progressively more senior positions with the organization when it became an energy trust, including Manager of Geology and Vice President, Exploration.

[double dagger] Excerpt from TriStar website.

I own shares in TriStar after TriStar bought Kinwest, a private company, in January 2008. Home Investment Management Inc. holds TriStar shares on behalf of its clients.

PREVIOUS RICK'S PICKS:

Stoneham Drilling Trust (March 2007). Wait for recovery in late 2008 or early 2009.

NQL Energy Services Inc. (September 2006). Sold to National oilwell Varco (NOV on NYSE) at $7.60 per share.

Delphi Energy Inc. (July 2006). Sold months ago because of change of opinion.

Crescent Point Energy Trust (May 2006). For those who don't own Crescent Point, it's a buy for yield. For those who owned stock for a while, you should have sold half your holdings by now.

To view Rick's previous picks, visit www. homeinvmgmt.ca/articles.php.

Richard G. Strand, CIM, FCSI, DMS, CH.P. is the President of HOME Investment Management Inc., a registered portfolio manager/investment councelor in Alberta, and Canadian Managed Futures Inc., a Portfolio Manager-Exchange Contracts, also in Alberta. To learn more, check out these two websites: homeinvmgmt.ca and canadianmanagedfutures.com.