Merry Christmas!

Please remember that Christmas is really about the birth of our Lord and Savior Jesus Christ.

Arena Resources #20 on IBD 100 List
Report in December 26th Edition

Why Wallstreet Analysts are Biased and Why You may Not want to Take their Advice in Regards to GMXR

My track record on analyzing GMXR is near perfect. Note how my GMXR FY2006 EPS estimate on March 10, 2006 was $0.67 when wallstreet was calling for $1.67. Today Wallstreet is calling for EXACTLY $0.67. My analysis is right on target! Given the fact that the Wallstreet analysts were way off target on their earnings projections in March of 2006 when I was right on target in addition to the fact that the Wallstreet analysts may be biased it would make sense to listen to an unbiased independent researcher such as myself.

Why listen to what I have to say?
1. I understand GMXR fundamentals
2. I understand GMXR earnings potential. Reference my posts on March 10, 2006 and compare them to Wallstreet analysts.
3. I understand GMXR management.
4. I have a proven track record that is archived for all to see.
5. I am unbiased in regards to GMXR. I am neither long nor short the shares. I receive no bonuses if GMXR shares trade higher or lower. The only reason I comment on the company is a result of the benchmarking between GMXR and ARD. (GMXR is part of a 9 company peer group that I use to value ARD.)

Why Wallstreet Analysts may be Biased and Why You may Not want to Take their Advice
1. Their bonuses may be at stake. Failure to meet target prices could cost them personally.
2. The analysts or their firms may be long GMXR Shares. It would be logical for them to try and 'talk the stock higher.'
3. Their jobs may be at stake. Bonuses aside sometimes analysts pay the ultimate penalty for being wrong: their job.
4. They are slow to understand GMXR

What are Wallstreet Analysts Saying Today?
When you read their December 20, 2006 updates please keep in mind that their research may be inherently biased. Therefore, you may not want to listen to their advice.

1. First Albany Capital $61 Price Target. Reiterate Strong Buy Rating
(Analysts Eric Hagen and Rhett Bruno)

2. Capital Southcoast, Inc. $51 Price Target. Reiterate Buy Rating
(Analysts Richard T. Moorman & Christopher George)

3. Ferris Baker Watts, Inc. $70 Price Target. Reiterate Buy Rating
(Analyst Richard F. Rossi)

It is amazing that these three analysts today felt compelled to "Reiterate" their "buy" and "strong buy" ratings. The possible main reason they felt the need to "Reiterate" is due to what they may have at stake personally as mentioned above. All three reports have headlines admitting disappointment in the horizontal well yet price targets and ratings remain unchanged. This is proof that these three firms fail to understand that the value of a company is not based primarily on proved reserves. Rather the long-term value of a company is based on a combination of proved reserves and the profit that can be expected as a a result of producing those reserves, the management team running the company, the fundamentals of the company, and the future growth prospects of revenues, net income and earnings per share.

In conclusion, it is easy to see that the Wallstreet analysts covering GMXR are slow to understand the company and may be biased in their support of the company even after yesterday's press release. On March 10, 2006 the Wallstreet consensus was calling for GMXR FY2006 earnings estimates of $1.67. At the same time I was calling for GMXR earnings of $0.67. Today Wallstreet analysts consensus is $0.67. Clearly Wallstreet is slow to understand GMXR, the fundamentals, what drives profits & valuation and the poor quality management team running the company. One of the main problems with Wallstreet analysis of GMXR is the fact that they focus their valuation on reserve growth while discounting GMXR's lack of earnings power, their high cost structure or the questionable management team running GMXR. Therefore, there are many reasons why you may want to avoid the biased and off-target advice of Wallstreet analysts and instead listen to on-target and unbiased logic.

Seven Secrets the Kenworthys' do Not want You to Know
Today's Press Release Confirms These Findings

In a Yahoo Message board post dated December 14, 2006 entitled, "7 Secrets the Kenworthys' Do NOT Want you to Know," seven reasons were given that cast serious doubt on the GMXR franchise ranging from significant overvaluation of GMXR shares to a GMXR management team that is not talented or detail oriented. One of the seven 'secrets' includes my near perfect track record on analyzing GMXR. Note how my GMXR FY2006 EPS estimate on March 10, 2006 was $0.67 when wallstreet was calling for $1.67. Today Wallstreet is calling for EXACTLY $0.67. My analysis is right on target!

Of the, "7 Secrets the Kenworthys' do NOT want You to Know" there are three that apply to the press release issued today after the market close on December 19, 2006.

The 'secrets' that apply include:
1. Secret #2 (high cost structure; horizontal well project producing at a loss.)
2. Secret #5 (Poor management team; Lack of talent & detail orientation.)
3. Secret #7 (My analysis on GMXR has been on target; Wallstreet is slow to understand GMXR)

Certainly connections can be made with all seven 'secrets' as they pertain to the press release but the above three need to be emphasized in relation to the high probability of failure with the GMXR horizontal well project.

Secret #2 High Cost Structure/ Horizontal Wells Economic Failure
GMXR has an extremely high cost structure and it is only going higher. Why? Horizontal drilling is very expensive. GMXR will more than likely be losing money on the projects. Drilling expensive wells when NG prices are low and headed lower is not a good business decision.

Let me repeat a key phrase in Secret #2: "GMXR will more than likely be losing money on the projects."

In the press release Ken Kenworthy Jr stated that the production rate from the completion is, "below expectations."

GMXR CEO Kenworthy Jr. indicated that the horizontal wells could be money losing projects when he emphasized, "We need 4 BCFE ultimate recovery per horizontal well at a finding cost of $1.25 per mcfe to justify a change from vertical development and it could take several wells to judge whether these efforts are going to provide the necessary results."

Secret #5 (Poor Management at GMXR; Lack of Talent and Attention to Detail)
GMXR has a management team that could easily be classified as poor. CEO Ken Kenworthy Jr. and CFO Ken Kenworthy Sr. lack the qualities of a superior management team in that their decision making skills are poor and could be classified as careless and reckless towards the shareholder's investment in the company and the success of GMXR. In addition the GMXR management team lacks the necessary attention to detail that is an absolute requirement of any senior leadership role.

One problem caused by a lack of attention to detail resulted in the CFO Ken Kenworthy Sr. signing the CEO certification of the 2005 10K. The CEO certification is reserved for the CEO and signifies that the 10K complies with the requirements of the SEC Act of 1934 and that the information contained in the report fairly presents the financial condition and results of company operations. Ultimately an amended 2005 10K report had to be filed.

Another problem caused by a lack of attention to detail resulted in GMXR filing 6 SEC filings late in the last 5 years. This is not normal to be late on so many SEC filings. As an example Arena Resources has been in business since 2001 and has submitted every SEC filing ontime. There is absolutely no excuse for a late filing.

What are some examples of poor decision making skills? In a Q4'05 conference call that took place in March of 2006, Ken Kenworthy Sr. noted his desire to saddle GMXR with $50 million in debt and to find, "the best deal." It is important to note that even the 'best deal' could be one that is not worth taking. Drilling the expensive horizontal wells at a time when natural gas prices are weak can only lead one to believe that the 'best deal' was a gamble (high risk/high cost bet) on a project with a low probability of economic success.

By stating in the press release, "We need 4 BCFE ultimate recovery per horizontal well at a finding cost of $1.25 per mcfe to justify a change from vertical development and it could take several wells to judge whether these efforts are going to provide the necessary results," the CEO is admitting that 'the best deal' is now presenting the likelihood of failure if ultimate recovery is less than expected or production costs are higher than expected. If natural gas prices soften as a result of warmer weather this expensive horizontal well drilling project would be a significant loss for GMXR and the shareholders.

Another drawback to the horizontal project is the fact that it will take several more wells to judge the longterm viability of the entire project. In other words the stakes must be raised where there is already disappointment in terms of production coming in "below expectations."

Superior management teams do not make decisions that are setups for failure.

Clearly this project was a setup for failure and the best deal was nothing more than a gamble. This is especially true given the fact that GMXR is a company with a very high cost structure as noted in secret #2.

Secret #7 (My analysis on GMXR has been Near Perfect; Wallstreet is Slow to Understand GMXR)
My track record on analyzing GMXR is near perfect. Note how my GMXR FY2006 EPS estimate on March 10, 2006 was $0.67 when wallstreet was calling for $1.67. Today Wallstreet is calling for EXACTLY $0.67. My analysis is right on target!

In conclusion, GMXR presents many risks to investors as stated in the post, "7 Secrets the Kenworthys' do Not want You to Know." The press release today confirms these findings.

Arena Resources #10 on IBD 100 List
Report in December 18th Edition

Exxon Op-Ed Article on American Energy Security Unbelievable
Either Exxon intentionally misleading public or leadership is unqualified

An op-ed article entitled, "A World of Energy: Americans get oil from many sources - and this makes supplies more secure" is clear indication that America's largest oil company is either intentionally trying to mislead the public or they have leadership that doesn't understand the fungible characteristics of the world oil market.

Here are a couple points in the article that give the reader the idea that our supplies (and ultimately the price at the pump) are secure:

1. "A truly global market in oil, with multiple suppliers around the world, helps to mitigate the impact on the United States if supplies are disrupted in any one country or region."

If supplies are disrupted, the primary impact will be a significant rise in oil prices. The number of countries that supply oil to U.S. consumers has absolutely no impact on prices as the commodity is fungible.

2. One paragraph states the importance of Middle East oil production but downplays that importance by stating, "But it is important to remember that many different oil producers are competing for access to American consumers."

The statement above may have been true in the early days of oil production where company's such as Standard Oil were looking to secure a base of consumers for their newly found 'rock oil.' Today oil company's produce as much as they can. The concern is not a lack of market to consume the oil produced. Rather the concern is usually declining production growth and difficulty in growing proved reserves. The more correct statement would be that, "American consumers compete for access to oil."

3. The subtitle states, "Americans get oil from many sources - and this makes supplies more secure."

Since oil is a fungible commodity the above statement is false. There is no correlation between an increased number of suppliers and increased "security." The U.S. had many sources of oil during the 1973 oil embargo and our oil supplies were anything but secure. According to the EIA, the U.S. imported 11.9% of product supplied from the Persian Gulf in 2005. This is significantly higher than the 4.9% imported in 1973.

In conclusion, since the executives at Exxon must understand the fungible nature of the worldwide oil markets it is obvious that the op-ed piece is simply propaganda designed to mislead an extremely uninformed American society. Future oil supplies (and prices) are anything but secure.

Why Value ARD Proved Reserves Based on NYMEX Prices?

One "investor" seemed offended at the thought of valuing ARD proved reserves based on the current NYMEX commodity prices. Most people probably feel the same as this "investor" in that it is "illegal" to value a company's proved reserves based on the spot price of oil and gas. The herd mentality of valuing proved reserves only serves to reduces ones ability to understand the fundamentals and intrinsic value of a company.

Valuing proved reserves at full value is helpful in determining the true value of reserves that will one day be produced. While it is true that if ARD sold a portion of their unproduced reserves they would receive far less income per BOE than if they actually produced the oil, it is important to keep in mind that ARD is in the business of PRODUCING their reserves....not selling their reserves prior to being produced.

Secondly, NYMEX market rates for crude oil provides superior transparency and visibility as to the value of produced oil due to both the frequency of the transactions and also the fact that transactions involve oil only and are paid in U.S. dollars.

On the other hand, there is far less visibility and transparency in valuing proved reserved based on what one would expect to recieve by selling the reserves that are still in the ground. Why? Transactions such as these are not only rare but almost always involve many other assets besides the proven reserves and the medium through which the deal is conducted often times involves both cash and stock. In other words, the additional variables involved in transacting proved reserves prior to production provide less visibility and transparency than that of oil of which is produced and sold on the open market.

Therefore, by using the market rate at which oil trades on NYMEX as a basis for valuing proved reserves, one can have a much clearer understanding of the intrinsic value of a company. This understanding is significantly enhanced when comparisons are made between the company being studied and that of a peer group. Ultimately we base the value of the proved reserves on net income the company can expect to generate as a result of producing the proved reserves on a per share basis.

This topic was blogged about on March 14, 2006.

ARD Closes at Record High of $47.40
Record High of $47.70 set Intra-Day on December 8, 2006

Excellent Fundamentals, superb management, extreme undervaluation and significant margin of safety are drivers of the share price.

The Dirty Little Secret the Government Does Not Want You to Know About Ethanol

Click here => Dirty Little Secret

Arena's Acquisition in Permian Basin: Points to Ponder

* Spend $0.36 per share and increase value by $16.20
* Shareholders receive value that is 45X greater than the cost.
* Original acreage on Fuhrman-Mascho was 12,000 acres; Acquisition increases property size 5,000 acres to 17,000. This represents an increase of over 41%.
* Arena will be the operator and have an average working interest of 97% and average net revenue interest of 74% in these properties; Original sections of F-M have working interest of 100% and net revenue interest of 75%
* New sections of Fuhrman-Mascho will reduce ARD costs to develop by 3% as a result of only a 1% reduction in revenue. (See bullet point above.) ARD continues to emphasize being the low cost operator.
* The Leases are contiguous to the Company's Fuhrman-Mascho lease acquired in December 2004. This is a smart acquisition that not only adds value via increased acreage and proved reserves but also enhances value of pre-existing F-M property as a result of location.
* Arena's engineering team has identified 90 new drilling locations on 20 acre spacing. How many drilling locations are available with 10 acre spacing?

ARD Limit Order Filled @ $46.61
Today's Acquisition Increases Value per Share by over $15 ; Management Team is Best in the Business

Today's press release reads: Arena Resources, Inc. Adds 4.7 Million Barrels of Oil Equivalent of Proved Reserves in Permian Basin

How does the acquisition add over $15 per share in value? Let's take a look at the math:

Assume the following:
Share Count (fully diluted)..........17.0 million
Proved Reserves Oil Added..........4.7 million BOE
Acquisition cost...............................$6,117,500

This deal adds oil proved reserves per Share as follows:
4.7mm BOE / 17.0 mm Shares = 0.27 BOE/Share

How much is the 0.27 BOE/share worth?

Lets value the proved reserves at $60/ BOE.

0.27 (BOE/Share) X $60 = $16.20

Acquisition costs were almost $6.2 million. How much were acquisition costs per share?

$6.2 million / 17mm (shares outstanding) = $0.36

The net gain in value of proved reserves per share is as follows:
$16.20 (value of oil) - $0.36 (Cost of oil) = $15.84

In summary, this deal adds over $15 in value to oil proved reserves per share at a cost of only $0.36 per share. This is a deal that is without a doubt stacked in favor of the ARD shareholders. However because the sellers are also receiving ARD shares it is a win-win situation for both parties involved. Congratulations are in order for Tim and Stan for a job well done!

ARD Closes at Record High of $46.50
Record High of $47.09 set Intra-Day on December 6, 2006

ARD Closes at Record High of $45.76
Record High of $46.09 set Intra-Day

ARD Closes at Record High of $45.10
All-Time High of $45.85 set Intra-Day

ARD Limit Order Filled @ $45.49
The Shares Remain Undervalued

Arena Resources #11 on IBD 100 List
Report in December 4th Edition

"Oil and gas producer owns 10 straight quarters of triple digit revenue growth."
~Investors Business Daily