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Strategies & Market Trends : Value Investing

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To: 7 Years who wrote (41448)	2/18/2011 2:50:23 PM
From: E_K_S	Read Replies (1) of 78768

Re: Emerald Bay Energy Inc. (EBY.V) I am going to pass on this one. The company has a bit too much debt for their current revenues IMO. Even with their recent success using new technologies to optimize the flow rate in previous unproductive wells, they continue to lose money. That's not to say once they get ramped up to optimize the 10 new wells in their recent license with PRI they could be marginally profitable. The main problem I have is the company is maxed out on their revolving credit facility and it is unclear to me how they will finance their 2011 capital budget to do these new projects. They are paying prime plus 2% on their revolving credit facility now and the new incremental production does not even cover their debt service even with the higher Oil & NG prices. Therefore, the value proposition is in their 25% ownership in PRI and their new well optimization contracts w/ them. They are going to need a JV partner w/ deep pockets to help finance this new project. They surly will not be able to do it by issuing more stock at $0.06/share less filing fees. EKS P.S. One well optimization company that is doing the same thing and is quite profitable is Lucas Energy, Inc. (LEI), They have announced some new deals, have very little debt can raise money by issuing shares in needed (only 24 million shares out) and/or can utilize their credit facility and most recently an insider announced a 6% position in the company around the current price. The company has shown they can be profitable on each new incremental deal they proceed on w/o adding any significant debt. On their Feb 2011 presentation they have NAV of proved & probable reserves valued at $5.98/share up from $3.79/share as reported April 2010. ( see page-13-http://www.lucasenergy.com/wp-content/uploads/2011/02/LEI_February_2011_Presentation.pdf )

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