RE: RE: Conv Debenture - @ $1.70
1. The key here is AVERAGE 2911 production. The additional $40M will not be spent on
drilling until Q4 and those wells mostly will come on side in early 2012 . The ones that
come on during 2011 will only have maybe 1 months production in 2011 and so will not
have much effect on AVERAGE 2011 production.
2. Yes, they are over leveraging. They have little choice since they were a gas company with
a lot of debt. With such low gas pricing they would be hard pressed to stay afloat unless they
can increase their oil production. With little cash flow capital is needed to make the CARDIUM
drills. Fortunately the CARDIUM program appears to be successful and oil prices are high.
Borrowing at 7.25% to drill for $100 oil should be profitable and we are fortunate to have so
many locations to drill. The CARDIUM should keep us afloat until gas prices recover and then
there will be a chance for some upside with profitable oil AND gas operations.
3. Convertibles attract short selling. If the buyer of the convertible can short the stock at the conversion
price, he can then fully recapture the money that was spent on the convertible and still be getting
interest payments from the convertible. This is called 'free money' . He can make a nice profit
even if he can short the stock at prices as much as 10 to 12% below the conversion price. The
lower the price he shorts at the less profit he makes. Often the fact that a convertible issue is
coming will cause existing shareholders to throw in the towel and sell their shares and thus
cause the stock price to fall even before the convertible issue is announced.