TORONTO (Dow Jones)--In starting coverage of Crocotta Energy Inc. (CTA.T), Clarus Securities Inc. said it believes the Calgary oil and gas company boasts many advantages that should allow it to outperform its peer group over the next 12 to 24 months.

"We believe that Crocotta has been overlooked in relation to its peer goup of natural gas companies focused on extracting higher returns from tight gas reservoirs with the use of horizontal drilling and multi-stage fracs," analyst Kirk Wilson said in a research report Monday.

He said one advantage for Crocotta is that it has a deep inventory of projects in several high growth areas, but hasn't drilled many horizontal wells to date. Many other natural-gas producers have had success with horizontal drilling and multi-stage frac technology in the numerous tight reservoirs and the market has recognized the potential within most of those companies, Wilson said.

He also said the company's "experienced and successful" management team, "strong and improving" financial position and "advantageous" tax pool position should contribute to above-average growth over the next few years.

Wilson started coverage of Crocotta at buy with a C$6 target price.

Wilson noted that management at Crocotta, which is the same team that previously led Chamaelo Exploration before its sale to Kereco Energy Ltd., has considerable experience in the mergers and acquisition game. He expects the company will continue to review a number of opportunities to find potential acquisition candidates.

The analyst said Crocotta has boosted its production by way of acquisitions and drilling activity over the past year to 2,160 barrels of oil equivalent a day in the first quarter of 2008 from 103 barrels a day in the first quarter of 2007. It currently produces about 2,400-2,500 barrels of oil equivalent a day.

Wilson estimates average production in 2008 of 2,490 barrels of oil equivalent a day, rising to 3,200 barrels a day in 2009. He is projecting 2008 cash flow of C$37.8 million or C$1.10 a share and earnings of C$7 million or 20 Canadian cents a share. In 2007, Crocotta had cash flow of C$6.4 million or 38 Canadian cents a share and posted a loss of C$700,000 or 4 Canadian cents a share.

Crocotta began trading on the Toronto Stock Exchange in October 2007. In Toronto trading Monday, its shares are up 11% to C$4.00.

The analyst said that, five years ago, tight natural gas plays weren't well accepted within the oil and gas industry, let alone with investors. Now, technological advancements have made many unconventional plays, such as Montney, Rock Creek and shale gas and Bakken oil, more accessible and highly economic, he added.

Crocotta's properties are focused in West Central Alberta, Southern Alberta Foohills and Northeast British Columbia.

Wilson believes Crocotta's long-term approach to building an intermediate producer should generate above-average returns.

There are some investment risks to consider, the analyst noted, such as commodity prices, exploration risk, availability of services and weather.

Clarus doesn't have an investment-banking relationship with Crocotta and the analyst doesn't own the shares.

Company Web site: http://www.crocotta.ca

-Judy McKinnon, Dow Jones NewsWires; 416-306-2100

(END) Dow Jones Newswires

06-23-08 1345ET

Copyright (c) 2008 Dow Jones & Company, Inc.''

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