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Gold/Mining/Energy : CPE: Callon Petroleum Company -- Ignore unavailable to you. Want to Upgrade?

To: Ed Ajootian who wrote (8)	11/23/2002 5:10:28 PM
From: Ed Ajootian	Read Replies (1) \| Respond to of 31

OK, lets talk about your subjects, debt (no, DEBT) and costs. First, debt. What about it? What's a quarter billion $$$$ between friends anyway? <g> Seriously, the key to me is that, even with all the debt that is due in '04, the '04 bonds are still trading at a robust quote, bid 90, ask 95. This tells me that the bondholders (hey dorn, you still around?) are pretty comfy with their holdings at this point. If they're not worried then why should I as a shareholder be worried? Now, let's talk about costs, or more precisely, cap ex budgets and the severe disconnect between such and the amount of cash flow of the company. Per the latest 10Q, they plan to blow another $18 M this quarter for cap ex. Now, pray tell how they're gonna make ends meet given their cash flow for 3Q was not even $5 M? Here's how. They should easily generate $6 M of cash flow from operations this quarter. They will be selling some small O&G properties for $3 M (per Jefferies report plus I believe it was mentioned in the CC). They started the quarter with $7 M cash and $10 M of availability on their bank line. So they cover this quarter's cap ex with $8 M of bank line availability to spare. That should be plenty to cover contingencies. Now, for 1Q '03 they plan to spend about $11 M for cap ex (per the Friedman Billings report, which is higher than the # in the Jefferies report). They should easily generate another $6 M for 1Q, especially given that the Shelf project that they are working on now will be producing by 1Q. So that means they will have to draw on another $5 M of their bank line to make ends meet for 1Q, leaving a cushion of $3 M. Now I can you all the way from here, "that ain't very much cushion", right? But now we have to consider their Ace in the Hole. That, my friend, is the high likelyhood that they will have done a sale/leaseback of the Medusa spar, long before the end of 1Q. The Jeffries guy speculates that they should be able to recoup their $30+ M of costs, in exchange for signing a long-term lease for the spar. I would not be surprised if this sale/leaseback occurs as soon as the spar hull is successfully installed and the topsides are successfully mounted on the hull. This will probably occur in January. With the Medusa sale/leaseback occuring in 1Q, everything looks like a lock to me. Murphy, the operator, has stated their interest in doing a sale/leaseback of at least part of their interest in the spar. Even without the sale/leaseback, they can make it, but it will be tight. I'd appreciate any thoughts and comments. Hell, I'd even appreciate another "watch out for the boys from Natchez" remark at this point!