Might be time to challenge some numbers and the logic being applied. Don't mind if you challenge mine either as long as we have a forthright discussion.
I might also say since the "nearology" card is being played on Florence field (the green oil aspect for which Florence field was known as producing a greenish paraffin oil) then we should look to the past results nearby. I did this a while ago when I held AKK and posted the analysis. Data would still be relevant as I don't believe new wells have been drilled...
This is the starting point.
View attachment 187565
There you have 24 wells detailing their annual production from 2008 thru to sometime in 2015. This data comes from CO Oil and Gas Conservation Commission which is freely available public data.
So what does it tell you? Looking at the same data another way
View attachment 187573
Not exactly a normal distribution - like a bell curve. Grouping them you get a view that looks like
View attachment 187577
That's a lot of wells (15 in all) brought onto production that would not have been economic (IMO).
OK - I can hear the rumblings. This time its different. We claim nearology for the find but the AKK will be much better. All right then lets see if we give AKK the benefit of the doubt
Lets say 100% of AKK wells will result in EUR of 80,000 Bbls of oil (100% oil no gas).
Unless anyone has information to the contrary AKK's NRI is 75% (from their latest Annual Report).
AKK notes Pierre wells are >$650K D&C. For simple math call is $750,000
There is a -ve differential up to about $9/Bbl for Rockie mountains price. You don't get WTI sale price
So far we have,
1. Finding & Developing cost to AKK of $12.50/Bbl. Very low. (WellCost/NRI of EUR). This is CAPEX
2. Sales price of oil = $40/Bbl (WTI less the differential).
The main operating expenses are going to be LOE+Production taxes and of course G&A. This gets tricky in $/BO terms because we are dealing with a small volume. So if by "magic" AKK was producing 100,000 BO each year then the G&A cost would be $10/BO. Production taxes avg around 3-5% of gross revenue in CO so I'll use 4%. So each BO produced has a severance tax of $1.60/BO also nice and low. The LOE is going to be high as AFAIK there are no pipelines and trucking will be expensive. I think at best it will be between $20-$25 Bo.
So what do you have then?
1. +$40 Bbl well head price received
2. -$22.50 Bbl LOE (midpoint)
3. -$1.50 Bbl production tax
4. -$10.00 Bbl G&A
Operating Netback of $6/BO and AKK will claim (operating) cash flow positive.
But wait, then is also the F&D cost of $12.50/Bbl so from more of a GAAP Net Income view you have its a NEGATIVE $6.50/Bbl.
That is of course assuming 100,000 Bbls a year can be produced. And if each well produces 80,000 EUR even if these Pierre wells have a lower decline rate (say only 20% for 1st 3 yrs) there is still quiet a treadmill to maintain 100,000 Bbls per year.
NOT ACCOUNTING for the fact that you'll need to drill another 6 wells in short order. So where's that $4.5M bucks for that.
No fair comes the cries. He's Downramper. How so? Talk to the data.
Maybe a much simpler method without the details would be the say if it costs me $750K to drill then I need $12.50 Operating Netback to payback the cost of capital and breakeven on Capex - but who invests in a company that wont ever make any money.
OK well lets say the wells produce 50% of their EUR in 3 years. So 30,000 (remember its NRI for money purposes) in 3 years at $12.50 operating netback you get back $375,000 or 50% of the Capex. Also not a viable business.
What if Oil was $60 and 100% of that went to the Operating Netback bottom line making it $22.50/Bbl (does anyone here really think that G&A would stay that low). So now we made back $675,000 of the initial $750,000 well cost in 3 years. Hardly a good investment either.
At an EUR of 100,000 BO and $60 oil (so 37,500 Bbls NRI in 3 yrs x $22.50 operating netback) you get back $843,750. Puts the Capex payback in the 2 1/2 yr range and that is a viable business. The F&D cost reduces to $10/BO (as now $750,000/75,000Bbls) and overall there is Net Income of $12.50/Bbl.
If you are investing I hope the above helps
Good luck with your trading.
