Hi Inceptus,

"Would the revenue cash flow from producing wells not facilitate further capital cash needs?"

The cash from the initial pilot wells and 1st year of Production is going to pay for a portion of the year 2 wells, but it won't cover it completely. If we take the high end of the cash on hand range I gave at $500M, and each well costs QEC $1.5M, we've then got enough cash to cover about 330 wells. The first Production year though, the wells will cost more than they will in say year 2 or 3, just from an efficiency stand point, but how much more is hard to say. We still don't have any real numbers as to how much the first horizontals cost us.

If we assume they stabalize out at around 3mmcf/d for a year or two and we sell it for $5/mcf, that gives us $15k/d revenue, of which QEC gets around 25%, or $3750/day. At a cost of $1.5M, it will take about 400 days to cover the cost of the well. That's actually pretty good, but you're out of pocket for over a year, more realistically about 1.25 years. While 330 wells in year 1 of production is a darn good start to the process, we would really like to be in the 500-1000 wells drilled range in the following production year. So we're still kind of short.

If we slow down the pace a bit and drill another 250-300 wells in production year 2, financially we should be pretty set to then drill 500 or so a year in Production year 3 and all years after that. We're effectively over the hump at that point.

We need cash over the next 2 years to get us started, and after that we can grow simply off of our production. The problem to me is that after the 2 year time frame, we're now cash positive and will never need money ever again. This dilution I'll take, I know we need it for the next couple of years but I honestly believe a bank can easily fill up the remainder for us and we'll be in a possition to pay off the entire LoC by the time we finish year 3 of production.

We're talking about drilling thousands of wells in the Utica alone over the next 10 years. Somewhere 5-10 years from today (depending on priorities), we'll also start drilling the Lorraine, which will take us another decade. At which point, we'll be back to our original wells we are drilling today to re-frac them and start the process all over again. We'll be drilling in Quebec for the next 30 years if someone doesn't buy us out first. A LoC is temporary, share dilutions tend to be permanent. Short term solutions for a short term problem is my view.

Brym