POLAND

A light rain is falling as the bus rolls through Warsaw's streets, past electric trolleys, cars and cyclists jockeying for position. What the eye is treated to is a collision of cultures-past and present. Historic Romanesque and Baroque church steeples recall Poland's pre- and post-Renaissance periods. The streets are also peppered with rows of uniform, drab, gray buildings erected by the Soviets after the city endured its razing by the Germans in World War II. But then, around a circle heading into downtown, tall, modern, glass-frame buildings leap into view. They herald everything from worldwide hotel and fast-food chains to European banks and department stores, to international automobile manufacturers and soft-drink companies. Responding to today's fast pace of life in Poland, one McDonald's sign beckons to motorists: "Haven't got time to stop? Try our McDrive-Thru." What becomes clear is that the Republic of Poland's 38 million people, poised to join the European Union, are headed toward upward economic mobility. At the same time, they're headed toward the need for greater energy self-sufficiency. That's nothing short of ironic, considering that Poland was the first discoverer of oil, in 1856-and at one time in the early 1900s, the supplier of one-quarter of all the oil and gas in the world. But with the upheavals of war and occupation during half of the past century, Poland's once massive hydrocarbon output has slowed to a relative trickle. The consequence: today, 99% of its oil and two-thirds of its natural gas needs are imported-principally from neighboring Russia. Poland's Ministry of Environment and the state-owned Polish Oil and Gas Co. (POGC) are acutely aware of this dependence. That's why, beginning in the early 1990s, they've been encouraging western oil companies to bring their capital and skills to bear in Poland's oil patch-by offering concessions on generous terms. One of the foreign oil companies that responded early was FX Energy Inc., a small publicly traded Salt Lake City-based prospect generator originally focused on the Rockies. Since being founded in 1989, Nasdaq-listed FXEN has followed a simple strategy: establish a large land position in a prospective oil and gas area, shoot and process seismic to demonstrate that area's hydrocarbon potential, then elicit early-stage exploration funding and technical support from a larger oil company to pursue that area's growth potential. How did such a small-cap operator wind up in Poland? Call it serendipity. "We were working on a prospect in Nevada in the late 1980s that required some geophysical work," explains David N. Pierce, FX Energy chairman, president and chief executive officer. "That's when we encountered Jerzy B. Maciolek. He was an independent geological and geophysical consultant in Houston, who had previously worked for Gulf Oil Research in Pittsburgh, following his escape from communist-held Poland in the late 1970s." Pierce liked the bright University of Krakow-educated geophysicist and hired him on the spot. During the next year or two, Maciolek learned FX's business model, then posed a dramatic question: "Why do you explore in the U.S., which is so tremendously worked over, when you could take your business model to Poland-which has been underexplored for the past 50 years and is opening its vast oil and gas provinces to western oil companies?" David and his brother, Andrew W. Pierce, FX Energy's vice president and chief operating officer, liked the idea. They also liked the fact that Maciolek knew virtually everyone in the Polish oil and gas community, from geologists to officials in the state-owned POGC and the Ministry of Environment, which grants oil and gas concessions. In 1994, the Pierces visited Poland, together with Maciolek, now FX's vice president of international exploration, and Warsaw-born and educated Eva K. Sokolowski, the company's manager of international relations and government. "The Polish government, which had already made the decision to be an open-market country, understood the need for western capital to develop its resources," says David Pierce. "And to that end, it had invited in some of the major oils. But at that time, those companies really had their eye on Russia's vast oil and gas potential, and spent little money on Poland. We explained our business model, which meant deploying capital, and the Ministry of Environment decided to give us a shot." In 1995, FX Energy signed an agreement with the Ministry of Environment to explore the 900,000-acre Baltic Concession in northeast Poland. The terms of the concession, in which FX has a 100% interest: a 6% royalty on production and an annual corporate income tax after costs-then 40% but now 30% and declining each year. Still, FX Energy needed capital to move forward. Enter Thomas B. Lovejoy, a well-known Wall Street investment banker, formerly with PaineWebber Inc. and Prudential Securities Inc., and now FX's vice chairman and chief financial officer. "When we signed the Baltic Concession, I helped the company raise $4 million through a non-underwritten public offering of shares so that we could reprocess all the seismic data the POGC had available on the area. We then used that reprocessed data to bring in RWE-DEA, one of the largest diversified energy companies in Germany, to pay the seismic costs and the drilling of the first of two planned oil wells." Lovejoy also helped engineer a $20-million common stock offering for FX, in 1996. Although the Baltic Concession was near Kaliningrad, a district of Russia that has produced about 200 million barrels of oil from Cambrian sands, the two Baltic wells drilled in 1997 were noncommercial. Nonetheless, the $3-million investment proved a success in other ways. "We kept our promise to the government," explains Andrew Pierce. "We were the first foreign oil company to drill a well in Poland, and we did so using Polish geophysical experts from Geofizyka Torun, as well as Polish drilling crews and equipment." Even though the wells were unsuccessful, FX shared its data on them with the Ministry of Environment, the POGC and interested academics. "That was appreciated and strengthened our credibility within these communities." Undaunted by its Baltic experience, FX Energy pursued and was granted other exploration concessions. Among them was the 5-million-acre Lublin Concession, southeast of Warsaw. It produces oil and gas from Carboniferous channels at 6,000 feet and natural gas from Devonian reefs at 11,000 to 13,000 feet. The company also obtained the rights to explore on the 2.2-million-acre Pomeranian Concession in northwest Poland, where the primary targets are Permian and Devonian sands; and on the 2.9-million-acre Carpathian Concession in southern Poland, where the target horizons are the Miocene, Jurassic, Cretaceous and Devonian. "When we were awarded the Lublin Concession in 1998, we were approached by Apache Corp., which had identified Poland as one of the most attractive European countries to be in economically," says Lovejoy. "They subsequently agreed to partner with us equally in the Lublin, Pomeranian and Carpathian concessions. In addition, they invited us as a 50-50 partner into their Warsaw West Concession, adjacent to the northwest corner of the Lublin Concession. We and Apache also invited the POGC in for up to a third interest in the Lublin, Pomeranian and Carpathian concessions. Apache agreed to pay for the bulk of our share of the work commitment. This included the cost of shooting 1,240 miles of seismic, as well as the drilling and virtually all the operatorship of 10 wells on our joint acreage." In turn, the POGC invited FX Energy and Apache to participate, on the same terms, in its portions of blocks adjacent to the Lublin, Pomeranian and Carpathian concessions. Earlier this year, the POGC went one very big step further, in FX's case. "The POGC invited us to participate in their prime 300,000-acre 'Fences' production area in west-central Poland," says David Pierce. "This is the most significant event in our history here. To me, it represents trust and acceptance-and the opportunity to achieve tremendous growth, in terms of reserves, production and cash flow." Pierce isn't exaggerating. The top geophysical minds of the POGC in nearby Pila, Torun and Zielona Gora have developed and refined two solid exploration models covering Fences, which indicate two prolific gas trends. The first is the Rotliegendes Trend, a Permian-age sandstone play associated with the Poznan Depression. Thus far, the POGC has discovered four fields in this trend, with total estimated recoverable gas reserves of more than 500 billion cubic feet. The second is the Reef Trend, a Zechstein limestone play associated with the Wolsztyn Block in the southern part of Fences. To date, the POGC has discovered six reef structures in this trend, drilling 24 out of 27 successful wells. The trend's estimated total recoverable gas reserves: 800 Bcf. "This is the lowest-risk exploration drilling we've ever seen," says Andrew Pierce. FX's first well in the Rotliegendes Trend-the Kleka #11-was a success, flow-testing this August at 34.3 million cubic feet of gas per day from a depth of 3,000 meters (nearly 10,000 feet). "We expect to have this well on production by year end-which will mark the first commercial gas production by a western oil company in Poland." At the start of 2000, FX and Apache made another gas discovery with their Wilga #2 well in the Lublin area southeast of Warsaw, which flow-tested 17 million cubic feet per day of gas and 500 barrels of condensate. Production facilities, however, were not hooked up. Under the terms of the Fences concession, FX Energy, with a 49% interest, will spend $16 million during the next 12 months to drill at least five more wells and acquire 3-D seismic over leads identified by the POGC, which holds a 51% interest. This September, the two partners began drilling the Mieszkow #1 well, which will test another structure in the same Permian-age Rotliegendes play as the successful Kleka #11. Says David Pierce, "We think there's another 200- to 300 Bcf in the Rotliegendes Trend, so we expect FX to net another 100 Bcf, which has more value than our current market cap. This, of course, doesn't count the higher gas potential of the Reef Trend." How will FX Energy finance its commitments in Fences and its other Polish concession areas? Earlier this year, it completed a $10.4-million private placement of common stock, which will help carry it through the year, says Lovejoy. "However, in the case of the Fences project, we believe this type of low-risk, almost development drilling lends itself well to debt financing. With this in mind, we're currently in discussions with a commercial bank about a credit facility as high as $50 million that we can drawn down upon as we move ahead with our drilling program in 2001." Obviously, FX isn't sitting on the Fences. While a relatively safe bet, it represents only a fraction of the unrisked reserve potential the company is exposed to over its 16.1 million gross acres of concession and option acreage in Poland. In the Pomeranian Concession, for instance, where it and Apache began drilling in October, estimated remaining overall recoverable gas reserves total 4 Tcf. And in the Carpathian Concession, the pair is initially targeting oil prospects with estimated reserve potential totaling 20 million barrels. Pierre E. Conner III, vice president, equity research, for Hibernia Southcoast Capital in New Orleans, estimates that FX Energy has exposure to 2.3 Tcf of gross, unrisked gas reserve potential-or about 1.2 Tcf net gas reserve potential-through its Fences, Wilga, Pomeranian, Warsaw West and Carpathian wells, in the next 12 to 18 months. "This is the reason to buy FX-its potential increase in net asset value by way of reserve additions through the drill bit." Conner pegs FX's current NAV at about $2 per share, based on proved reserves the company has at Wilga and in the Rockies; he doesn't include its recent success at Kleka or further proved reserves at Wilga. "However, by the time it finishes drilling up its first round of Polish prospects in the Fences area, FX's net asset value-and stock price-could be more than $10 per share. Of course, success on any of the Apache Exploration Program wells might add significantly to this value." Like any other emerging producer, the company is in need of additional capital to take advantage of all the opportunities in front of it, the analyst cautions. "But to the extent that much of its game plan includes almost a step-out drilling program in the Rotliegendes and Reef trends in the Fences area, FX should be able to secure financing." Says David Pierce, "Early in 2001, we should have one gas well on production at about 3- to 5 million cubic feet per day; by the end of 2001, we hope to have, overall, eight to 10 wells on production, with daily output of 30- to 40 million cubic feet. It's at that point we'll become truly independent and financially self-sufficient." When it got into Poland three years ago, Apache Corp. saw burgeoning hydrocarbon demand in an emerging country significantly dependent on oil and gas imports from Russia, particularly gas-to the tune of 800 million cubic feet per day. "Our biggest concern at the time was finding hydrocarbons," says G. Steven Farris, Apache president and chief operating officer. "But during the past three years, the Poles through the POGC have found about 1.5 trillion cubic feet of gas. And earlier this year, we made an encouraging discovery at our Wilga #2 prospect southeast of Warsaw. Importantly, it's the first well ever to produce gas to the surface in Poland that was drilled by a western oil company. So in terms of risk capital versus unrisked reserve potential, we now believe we have a lot of leverage." Farris has made it clear that Apache is willing to invest substantial dollars to make Poland a core producing area for the company. "But the real question in Poland is whether the country will allow foreign contractors to invest heavily there, in order to achieve a foothold," he says. "What we'd like to do is to continue working jointly with the POGC, infuse more capital into their various projects, and play a bigger role in Poland's oil and gas industry." In Australia, Apache has invested almost $1 billion and has net daily production of 14,000 barrels of oil and more than 100 million cubic feet of gas. In another core area, Egypt-where it has been since 1996-the company has invested in excess of $1 billion, and its net daily output is 30,000 barrels of oil and 50 million cubic feet of gas. Says Farris, "We need to see a step-change in Poland-in terms of the ability to invest more dollars-to make it another core area for us. But this step-change has to make sense to the Poles as well." After spending three years helping to grow Apache's E&P foothold in Egypt, James L. House, now director of the company's upstream operations in Poland, sees plenty of prospective target areas to aim for in this eastern European country. "Besides the wells we and FX Energy have already drilled in the Lublin and Wilga areas in southeast Poland, we expect, through the balance of this year, to drill three more wells in separate regions of the country," says Warsaw-based House. "This will be in addition to reentering our successful Wilga #2 discovery and dually completing it, so that we can produce from two of three productive zones simultaneously. The planned flow-test program should demonstrate that there are enough natural gas reserves present to support the cost of building a pipeline and production facilities." This October, Apache began drilling the Tuchola #108-2 well in the Pomeranian Concession area in northwest Poland, which will test Devonian and Permian-age oil and gas objectives to a depth of 3,750 meters (12,300 feet). Meanwhile, another 3,500-meter well is under consideration for the Carpathian Concession in southern Poland, which would probe Cretaceous and Jurassic horizons for both oil and gas. In November, Apache also plans to drill the 3,750-meter Annopol gas prospect in the Warsaw West Concession. "This concession is our favorite," says House. "It's the least explored block and, based on our seismic data, it appears to have the most potential. There are some very deep 6,000- to 7,000-meter (19,500- to 23,000-foot) Rotliegendes-type prospects here that could have up to a Tcf of gas reserve potential." Is there any downside to living in Poland versus Egypt? "Just one," says House. "It's simply not possible to golf year-round." Another active foreign hydrocarbon hunter in northwest Poland is CalEnergy Gas U.K. Ltd. This London-based subsidiary of Omaha's Mid American Energy Holdings Co.-a worldwide power generation, electricity and natural-gas supply company-is focused solely on gas exploration and production in the U.K., Australia and Poland. In August 1997, CalEnergy Gas signed its first agreement with the Polish Ministry of Environment to explore for oil and gas in the Pila Concession, a 13,000-square-kilometer (8,000-square-mile) area in the Polish Trough in northwest Poland, close to the German border. The company's rationale? "The Polish Trough represents the easterly extension of the Permian Gas Basin, which stretches across the U.K., through the Netherlands and Germany, and into Poland," says Charles Fordham, new ventures coordinator for CalEnergy Ltd. "We've long had a presence in the U.K. portion of that prolific basin, which has significant quantities of natural gas on production in both the U.K. and the Netherlands. Given this, we felt we could transpose our technology and experience to the Polish end of that basin." Adds Fordham, "We also felt that the Polish part of the Permian Gas Basin was very much underexplored. For instance, if you were to overlay our Pila concession over a similar-sized area in the U.K. part of the Permian Basin, you'd find that in the U.K., about 200 wells have been drilled to test that play; on the Pila concession, only 24 wells have penetrated the Rotliegendes." But there's yet another reason why CalEnergy was drawn to Poland. "There are no production sharing contracts like there are in many other countries around the world-there's just a straightforward corporate income tax/royalty regime." Since early 1998, CalEnergy-operating in Poland through its subsidiary CalEnergy Polska-has shot close to 1,100 miles of new 2-D seismic over the Pila concession, with the help of Geofizyka Torun. In addition, CalEnergy has processed more than 1,550 miles of existing 2-D data. This September, 30 miles north of the town of Pila, the company and partners POGC and Petrobaltic Oil & Gas began drilling their first well-one of two to be drilled during the next 18 months. This well, which will cost $3- to $4 million, is targeting three horizons, the main one being the Rotliegendes at 4,000 meters (13,000-plus feet), says Fordham. "However, we're also anticipating hydrocarbon potential in the shallower Zechstein formation and the deeper, underlying Carboniferous." The second planned well will also target the Rotliegendes, but on a separate huge structure to the southwest. The reserve potential CalEnergy expects to encounter? "Very, very large, compared with similar Permian targets in the U.K. which typically yield 100- to 150 billion cubic feet of gas." Should the U.K. operator be successful, it isn't worried about a market for its gas. "All natural gas currently produced in Poland is sold within the country, and it's our intention to do just that, especially given the potential demand from local power projects, which represent an emerging market for gas," says Fordham. "However, given the proximity of other huge European gas markets, such as Germany, exports may be an alternative." No less smitten with Poland's oil and gas potential is Ramco Oil & Gas Ltd., a wholly owned subsidiary of Ramco Energy Plc, an energy and oil services company based in Aberdeen, Scotland. "Our focus on Poland is very much geologically driven," says Michael N. Burchell, managing director of Ramco Oil & Gas in Dorking, England. "We're looking at the fourth thrust belt in front of the Carpathian Mountains-not only in Poland, but in Romania and Bulgaria as well. The deep oil potential of the area hasn't been realized in the past due to the lack of high-quality seismic that can see through and into the overthrust." Ramco got into southern Poland in 1997 as the result of acquiring Medusa Oil & Gas, a British company that two years earlier received a 2,966-square-kilometer (1,839-square-mile) oil and gas concession from the Polish Ministry of Environment. On that acreage, Ramco in 1998 shot 300 kilometers (186 miles) of 2-D seismic, spent a year processing it, and is now three-quarters through shooting another 200 kilometers (124 miles) of 2-D-focusing on the highest-potential oil prospects. By the middle of 2001, it expects to drill its first well near the village of Ropa (which in Polish means oil), some 100 miles southeast of Krakow. "The principal targets of this 3,500- to 4,000-meter (11,500- to 13,000-foot) well are thrust sequences of Eocene and Paleocene sands," says Burchell. "The nearest analogy to this are the thrust fronts along the Rocky Mountains. We believe the Ropa prospect has the potential for several hundred million barrels of oil. Moreover, based on all the structures we've identified to date, the concession's entire unrisked reserve potential could exceed 1 billion barrels. If we're right about Ropa, we could see production within a year, and a very full exploration and appraisal program during the next few years." Depending upon the results at Ropa, Ramco has indicated that it may drill two additional wells in 2001 and 2002 that, besides looking at Eocene and Paleocene objectives, would also target shallower, potential oil-bearing sands, up to 2,000 feet. Given that Poland is a net importer of oil, to say the least, any oil that Ramco produces from its Carpathian concession-in which it holds a 100% interest-could be sold straight into local Polish refineries at international prices. Burchell notes that Poland also offers an enticing environment for any foreign operator seeking entry. "It has a fairly sophisticated and stable regime, in terms of government, law, business and property, a good infrastructure of seismic and drilling companies, and attractive concession terms. There's just a modest royalty and a corporate income tax that in recent years has dropped from 40% to 30%, with plans to go down to 22%. That sort of fiscal regime is important, for both the country of Poland and for foreign investment." With all these positives, how does Poland stack up against other European countries in which Ramco operates? Says Burchell, "We've done several Monte Carlo simulations, looking at each country's reserve potential, the economics of development, and the risk for success or failure there. And every time, Poland comes out as the top prospect." EAST LOOKS WEST After decades of languishing under a Soviet, centralized, planned economy, the state-owned Polish Oil and Gas Co. (POGC)-starting in the early 1990s-took aim at jump-starting oil and gas exploration and development in Poland. What steps did it take and how successful has it been? More importantly, where does it go from here? To find out, Oil and Gas Investor recently visited in Warsaw with two top POGC officials: Zbigniew Tatys, vice president, and Marek Hoffmann, director, geological bureau. Investor Compare Poland's oil and gas industry today versus 30 years ago? Tatys In the 1970s, we were producing 7 billion cubic meters (247 billion cubic feet) of natural gas per year. In the 1980s, annual gas production dropped to half that amount. We simply had no modern technology to create and drill new prospects. However, with a $250-million loan from the World Bank 10 years ago, we were able to acquire new exploration technologies and drilling equipment, and bring annual gas production back up to 4.5 billion cubic meters (about 159 billion cubic feet). Three years from now, we hope to get yearly gas output up to 6 billion cubic meters (nearly 212 billion cubic feet), and 10 years from now, up to 20 billion cubic meters (706 billion cubic feet). Similarly, we've seen recent improvement in oil output. Ten years ago, annual oil production was 150,000 tons (1.1 million barrels); this year, it should exceed 300,000 tons (2.2 million barrels); within three years, 800,000 tons (nearly 6 million barrels); and within 10 years, 2 million tons (14.9 million barrels). Investor What's your plan for achieving all this growth? Tatys The development of existing oil and gas fields, the discovery of newer fields, and the development of facilities to increase production. Also, within the past five years, we've been pursuing a strategy of cooperating with foreign oil and gas companies, in terms of granting exploration concessions to further develop Poland's oil and gas potential. Hoffmann Starting in the early 1990s, the legal tools were introduced, enabling the government of Poland-specifically the Ministry of Environment-to grant concessions to foreign companies to explore for and produce oil and gas in Poland. We then organized bidding rounds and made presentations in London and Houston, which attracted the likes of Texaco, Esso and Shell. Investor The terms of the concessions? Hoffmann Foreign oil and gas companies pay only a 6% royalty and corporate income tax, which is currently around 30%-but that has been declining every year. I believe that, in the U.S., oil companies pay a 12% royalty plus income tax, and in places like Pakistan, India, Syria and Azerbaijan-where we have concessions-the terms are much higher. Investor What has your experience been with major western oil companies in Poland? Hoffmann They're looking for huge fields. We offer them a lot of smaller, albeit substantial, reserve targets. As such, their interest hasn't been all that strong, simply because of their size and the very large objectives they're seeking. So we're looking to encourage smaller to mid-sized independents like FX Energy, Apache and Ramco, for whom a 30-billion-cubic-foot gas discovery would have a meaningful impact on growth. Investor What's natural gas demand like in Poland? Hoffmann Currently, it supplies only 8% of our overall energy needs; oil, about 18%. That means that 74% of our energy consumption is being met by hard and soft coal. Our energy policy is to increase natural gas supply and consumption fourfold over the next 10 years. It's environmentally better and, as we bring on more domestic fields, it will become economically more viable than coal, given coal's transportation costs. Also, there's a big move on to convert coal-fired electric-generation plants to gas-fired plants. Tatys Higher domestic oil and gas production will not only enable greater economic expansion within Poland, but also greater energy self-sufficiency and independence. For instance, we're now producing only one-third of our domestic gas needs; the other two-thirds is being supplied by one source-Russia. If that supply were interrupted, we'd have an economic crisis. So we need to diversify our gas supply. This includes stepped-up domestic production, as well as the construction of a gas pipeline from Norway. Investor In a democratic Poland, what other steps are you taking to make oil and gas a more vital and visible part of your economy? Tatys We're looking to privatize the E&P part of the POGC within the next year. We believe this will make us more attractive to western oil companies looking to bring in capital and do business here. This move would also bring us closer to the western way of managing and operating a company for profit. Right now, the level of personnel we have is too high. We need to consolidate in order to become more efficient, more competitive with imported gas. Of course, we have to combine the wishes of our owner-the Ministry of State Treasury-as we deal with reorganization, which could also include joint venture arrangements with outside partners for the various parts of the POGC: E&P, drilling and oilfield services, and geophysical. Investor How underexplored is Poland versus other countries around the world? Hoffmann Compared with Syria or Pakistan, we are a mature country; compared with central and western European countries, we are very much underexplored. BUYSIDE BELIEVERS What do institutional investors think about FX Energy's chances for success and growth in Poland? Oil and Gas Investor recently talked with four buysiders who have been in and out of the company's stock during the past five years. They include Karl E. Bandtel, partner, Wellington Management Co. in Boston; William Burt, vice president, Eaton Vance Management Co. in Boston; Peter Lagemann, executive vice president and director, H.G. Wellington & Co. in New York; and G. Bryan Dutt, president, Ironman Energy Capital LP in Bellaire, Texas. Bandtel The company has a great deal of exploration potential on a very large acreage position in Poland, with little competition. And with a market cap of only $62.4 million, any meaningful drilling success on that acreage could increase FX Energy's asset value two to four times its recent share price of $4. Of note is its recent gas discovery in the Fences area, which should be on production by early 2001. Its Wilga prospect could add further value down the road. Importantly, the company is currently in a good financial position, with roughly $5 million in cash and no debt. So there's no concern about how it will finance its Polish exploration program through this year. However, as it continues this program in 2001, it's going to need possibly $25 million or so of additional financing for development. Burt I agree with Karl. The initial attraction of FX Energy a few years ago was that of a small, modest market-cap producer exposed to a huge unexplored amount of acreage in Poland, which has essentially seen only rudimentary exploration by the Soviets and Poles in the past 45 years. Now, after initial drilling disappointments in northeast, eastern and southern Poland, FX has wound up in a very prospective gas area in the northwest-Fences-where the exploration drilling is almost developmental. Also, the infrastructure to hook up its wells there is right out its back door, presenting immediate access to local gas markets at good prices. The one problem I see is that FX is capital-limited and needs additional financing, to prove up the potential of its prospects-and the future of the company. Some people think the stock could be taken to $20 to $30 per share longer term. I'd be quite happy if it got up to the low teens in one or two years. Lagemann During the past half-century, Poland has been like a sleeping Rip Van Winkle. Why? The Russians didn't do much in the way of oil and gas development because they wanted to keep the Polish economy as a dependent satellite. Now the country is opening up and FX Energy has exposure to close to half the potential oil and gas producing acreage in Poland. This, plus modern 3-D seismic technology, gives it a great shot at significantly increasing its net asset value-particularly with all the wells the company is going to drill in the Fences area during the next year. This is an area where the POGC (Polish Oil and Gas Co.) has had so much success, drilling 24 out of 27 gas producers. I'd add that the existing values and future potential in FX-and its recent relatively low stock price-are fortuitous for investors. I'm a great believer in value and patience, and they've come together to make FX an outstanding investment at this time. Dutt The attraction of FX Energy is its incredible acreage position in Poland, as well as its close relationship with the POGC, which is trying to develop an oil and gas industry for the future growth of the country. But this is a long-term, high-risk, high-potential-reward story. FX won't have any meaningful cash flow until late 2001, and it probably won't be profitable until 2002. So this isn't a company that's going to be trading off of cash flow or earnings multiples in the near term. Rather, it's going to trade off first, its financial wherewithal to develop what it has and meet its financial commitments; and secondly, the amount of gas reserves it finds, its ability to get those reserves adequately produced, then get paid for them.