They've been talking about wanting to be in a position to enable using debt to fund expansion plans... in the future... for a long time.
Was discussed already at the first annual meeting I attended two years ago. The focus they've had on it then and since has been pretty smart... and I agree that I want to see them "lever up" pretty much as much as they reasonably can... when they can use that sort of money to maximum effect... before inflation really kicks in... and/or before asset prices really take off.
The flip side of that, of course, is needing or wanting to be right on the direction things are going to be heading in from here, generally, before taking the plunge. Still won't matter much, of course, if they borrow money to drill and develop an Oxy equivalent type of find ? Won't matter if the leverage enables a large enough acceleration that it more than pays for itself in a short time. I think it is not a bad thing that they are apparently thinking they are getting to that point a bit more rapidly, now, where talking about it is making it into the filings...
Call it an indication of how they evaluate progress to date ?
There are obviously a couple of limits, still, in their ability to do that, for now, and in the immediate future. Market limits in the availability of credit... obviously might be one issue. Having a couple of successful rounds that work out in a way remotely similar to the success in the current round will likely help to resolve a lot of if not most or all of that sort of concern. When they have a solid base of revenue established... and well defined reserves that can be used to borrow against ?
I'm a lot less concerned about the management focus on the need they see for it, or the utility they'd make of it... than I am on the simple risks associated with it. For now... still not clear enough on the crystal ball re the market timing elements to justify pulling the trigger only on that basis, I'd think. Thinking the economy will improve, with debt funding only a linear extension of current efforts ? They tend to be a little bit more conservative in managing those sorts of risks than I would tend to be... and they seem to make that just work right. I'm not likely to be second guessing their judgment on that aspect of the relative utility of the choices. I don't know what they know... I do see they're not ignorant of the risks... or unable to manage them well while making the right decisions.
Otherwise, I'll tend to agree with you that I'd rather see them be self funding AND succeeding handily to the point of being cash flow positive, or until they are profitable, or for as long as that continues to make really good sense... and not a moment beyond where it doesn't. I'd not want them to miss the bigger opportunities they might have lined up for us... for lack of an ability to fund their participation in the efforts.
Exploration that outlines additional horizontal development potential more rapidly ? Debt that funds drilling a lot of horizontal wells a whole lot faster ? I think it makes a pretty big difference in the time it takes... whether they drill that total of 50 or 60 holes in the East Slopes by the end of 2015... or get it done by the end of 2011.
And then, Maverick One might prove to be just as wrong about the nature of the limits in the future potential in the nature and number of the prospects in the properties... as he has been about other things, lately. If he is a shareholder as he says... he'd obviously be happy to be proven wrong about that, too.
The management has been there and done all that and more before... and they do know how to do it. Way more value to me in that, than there is a new concern created about the choices they'll think they should make.
I expect it might be worth chatting with them about it at the next annual meeting... which should be coming up pretty quickly?
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AI
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