beibu gulf valuation, page-5

Fortunately the land of HC is not real.It is populated by the generally far too optimistic, and as exhibited by this thread,the doomsayers. Lets look at PSA March 2011 with an eye borne of the real world.With a Board of Directors who have a fiduciary responsibility not to sign off accounts unless they believe all debts will be paid.One of the Directors is Chairman of Aust Post and Leightons Holdings-reputations mean something

1.Lets look at the debt of Petsec Energy Inc. (AMERICA). This $29.2m loan is secured by assets of PEI-(not PSA). Psa has provided no security or g/tee under the loan(not uncommon on asset specific loans of this type).

If you were the lender (Lehmans) what would you do?You could put PEI (not PSA) into CH11.Then you would manage the assets of PEI in a run off situation until the debt was extinguished. Extinguished it would be but at a slower rate. The rate would be determined by NG prices. They could also distress sell the assets and take a loss. I am unaware but my guess is the cash in the consolidated entity is not within PEI but PSA.

Lehamns have sensibly agreed to a change in the terms,in effect, based on this from the annual report:


Under the terms of the memorandum of understanding, the US$29.2 million liability will be fully extinguished in return for a payment of US$12 million in cash, conveyances of certain minority working interests in 2 producing fields, and 25% of PEI?s working interest in its non producing leases as at 31 December 2010. The working interest conveyances are effective 1 January 2011. Petsec Energy Ltd will fund US$11 million of the cash settlement amount. (See note 17 ? Loans and borrowings in the notes to the consolidated financial statements for further details).
As at the date of this report, PEI is in ongoing discussions with the lender to finalise the documentation and extinguish the loan under the terms of the memorandum of understanding.

So the Parent PSA is funding $11m of the $12m settlement.In the real world parties come to a compromise on terms. Lehman will get all their money and they will share in future opportunities as a 25% holder in some PEI leases.

SO I do not see an issue arising due to PEIs debt.

2. China.

PSA can play China by debtfunding 2011s funding requirement of $10m or now that FID has occurred look for a trade sale of a vg asset.Yu must remember in China that as well as the oil assets of 5.2 to 15.2MMbbl there is the recovery from CNOOC of the 51% of the $28m spent to date by Petsec.

The buyers of this asset could be either one of the jv partners or another party.Could you debt fund their obligations? In the real world you could!Why..well oil is ranging from $80-$110 . The real world.And just like with PEI youd secure against the assets-amazing how the real world works!!!!!!!

3. PSA have signalled a change in strategy and this is welcome as the NG strategy has not worked-some of it was their fault and some beyond their control.As well as larger targets,shale oil and salt dome oil plays they'll have China unless sold.Marathon was an example of the contacts they have and more will cone of that I believe due to the newish Director.

I could go on further but Ill let you read the latest material and make up your own minds. Most will decide better value elsewhere and that makes the market in the real world. Pithy statement like "Mr Market is usually wrong and youll find out at the end of the month" are ignorant.

I am a buyer of this stock now as i believe that generally all stocks have their buy point.I like the new strategy,i like fact they may sell China and i like fact they will have no debt. I also like the fact that the biggest s/h are management. they have made mistakes and its hurt them personally and now they get chance to correct that.