RE:RE:What is Aroway's strategy? Louel, I think you are a little confused in your terms, there really is no compounding of interest on a loan... all loan interest is paid on a declining balance basis in which previous months interest is added on prior to payment deduction. Total interest for a loan of this type is 106,000. the original LOC bore interest at 7% so in order to free up 300,000 of cashflow to drill Kerrobert they will pay a penalty of 60k or 6,000 per moth. pricey but it does free up drilling funds without dilution and their present cashflow can handle it without too much stress. ( one point to note is that once the reserve report ,which will take a into account a significant increase from Kirkpatrick, is out by the end of the month they will also likely be able to take a new LOC on more favorable terms and retire this short term loan by July)
GT is absolutely correct in his assertion that the West Hazel portion of debt, which was included in the accrued liabilities of 8.5 million, is being carried by the now not necessary water haulage fees which would have been mcuh more substantial at over 250k per month on 400+ boe production... so it is still an excellent proposition for the company since it diverts a previously lost production cost into an asset payment plan.
With respect to cgiffin query " Why would they have grown debt at all?" Operational debt grew by an additional 230k or so which was added to the short term loan amount to raise that figure to 753k This was due to insufficient revenue to carry all of the operational costs since West Hazel was shut in for so long... it is really a minor amount but it does show that the floor production needed to carry all costs including debt repayments is very close to the actual production of this quarter at 215 boe... this simply means that by cutting the 300k monthly payment in half and adding this 150k/month cashflow to the cashflow from the production above the 215 boe/d floor amount then Aroway will have the required funds needed to achieve their capex while continuing to pay down the debt.
Some of the speculation I've read these last few days is litterally laugable... take a remedial math program guys and some basic financial courses... for the whole year debt has only increased by 1,370,578 from 7,192,237 in july to 8,562,815 in spite having incurred WH costs of 1,4 million and sesmic program costs of 1.5 million. Production for the next few quarters will be reasonaly assurred at a rate in excess of 500 boe/ d and this slight restructureing will accelerate Kerrobert.