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Gold/Mining/Energy : PetroQuest Energy, Inc (PQUE and T.PQU) -- Ignore unavailable to you. Want to Upgrade?

To: Ronald J. Clark who wrote (346)	5/22/1999 11:54:00 AM
From: Ed Ajootian	Read Replies (1) \| Respond to of 686

Ron, One thing we gotta keep in mind about the High Island well financing deal was that it was made at the absolute bottom of the energy financing cycle. There was not a lot of options available to PQUE at that time. They took a very conservative approach to financing that well. They wanted a non-recourse loan because if they got a recourse loan and the well did not pan out, that could take down the company (or at least put a major dent in it). So in exchange for making the loan non-recourse they had to give great terms. Since they already are at positive cash flow even without that well they had the luxury of dedicating the lion's share of cash flow from the well to paying off the debt. I believe the production from the ORRI gets retained by the lender as additional "interest". It is only fair to give him such high interest since he is taking the risk that this well will produce. There's probably only a 1-in-20 chance that the well is a dud, given that it tested at 20 mmcf. But why bet the company on a 1-in-20 chance? Being a penny stock gives the impression that this is a very risky investment, a company that could go under at any moment. In fact, if you look under the covers, this company is actually rock-solid and is far less risky than a lot of companies far larger and traded on the NYSE. Take a look at the financials for Chesapeake Energy, Meridian Resources, and Comstock Resources for example. The loan is about $2 mm. They showed a separate line on the 1st quarter balance sheet showing the amount of accounts payable that are gonna be financed by that loan.