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Gold/Mining/Energy : Harken Energy Corporation (HEC) -- Ignore unavailable to you. Want to Upgrade?

To: Zeev Hed who wrote (3164)	7/8/1998 10:55:00 PM
From: drjoedoom	Read Replies (1) \| Respond to of 5504

Zeev's question: Why buy HEC? Zeev, you wrote to me: << Since you have done a much better due dili than Bruce [hint of sarcasm?], why don't you tell us what compelling reasons there are to invest in HEC. Their valuation at $4.5/share is kind of reach [sic] relative to cash and proven reserves. An elephant field would be nice, but so far they have hit only small fields, why should they have an elephant? Anyone else there has an elephant? >> I'm not going to detail the bullish case. You can get it from the company's investor information package. With your connections, you can get the reports by Paine Webber, Oppenheimer, Strain, and others. What I will do is point out the obvious limitation of your analysis: This is not a valuation play. Proven reserves and PV10 valuations are beside the point. This is an exploration play. Whether HEC has hit (Bolivar) or will hit (Cambulos) an elephant field is yet to be determined. The bullish case is that the odds are high that they have and/or will. Regarding that potential, you respond to Art: <<art, here you have me at a disadvantage, I do not know [tongue planted firmly in cheek?] what future drill bits will bring, I have only HEC's 10 K to evaluate the net worth of "goodies in the ground", and these are $90 MM as of December 31, 1997, probably much less with current crude prices. >> But the exploration potential is evident even to you. You have stipulated that the buyers of the floorless convertible are very shrewd investors. With your background in mathematics, Zeev, you have surely determined the implication of EnCad paying $25 MM for a 5.0% share in HEC's net profits, the Europeans paying $7 MM for a 1.4% share, the Faisal entity paying $3 MM for a 0.6% share. Each 1% of HEC's profits in these three exploration projects is worth $5 MM. So what is HEC's remaining 93% worth? $465 MM! I note that you did NOT include this $465 MM in your calculation of the value of the company. Why not? Why focus on "cash and proven reserves?" And what about all the rest of the company's prospects? Joe

To: Zeev Hed who wrote (3164)	7/9/1998 8:12:00 AM
From: drjoedoom	Respond to of 5504

My unanswered question: How do the shorts profit? Zeev -- You seem to believe that holders of convertible preferreds can profit from short sales. For example, you (3147) wrote: << So you . . . are exposed to a death spiral if the floorless choose to optimize their returns (I would if I was in their place). >> By "optimize their returns", I assume you mean "profit." Please tell me how they do this! Earlier, I posted the following: << If the company fails, I see no way the holder manages to do any better than merely recouping the original investment. Please explain to me how the holder profits from shorts? >> Thus far, you've ignored the question. What you have managed to do is leave me totally confused as to your true views, for in another message (3159), you did let slip the following: << The CTYS floorless stand a chance to lose half their money (to the extent that they did not hedge the whole position, which I think they did not). >> Based on this statement, it seems that you agree with me: The holders of the convertible preferred are initially bullish on a company's prospects. If their opinion changes, they may execute short sales DEFENSIVELY to protect their investment (i.e., to hedge). But they do not short for profit. In the so-called "death spiral" the holders of the preferred lose money, along with the rest of the "longs", despite their hedging. So, are the shorts (a) optimizing returns (3147) or (b) hedging against terrible losses (3159)? Zeev, you can't have it both ways. Honest Abe Lincoln once said, "No man has a good enough memory to be a successful liar." I'm not saying that you are a liar. Whether you are or not is uncertain, like HEC's reserves. But you do seem to be having some trouble keeping your story straight. Joe