Fundamental Financial Analysis

Please keep in mind when reading, that this is from the perspective of whether a company is "investment worthy" on the basis of what the company reports in its HY/FY/Qtrly reports, investor presentations and price sensitive ASX releases.

It does not consider macro industry variables (e.g. will KSA produce more, will OPEC actually reduce production, will Russia increase production, will the US impose imported oil tariffs to support local shale producers etc.) Such things would no doubt influence oil price which has a flow on effect to AKK but that has to be weighed against the amount of hydrocarbons produced and sold by AKK (which is very little at many years of raising equity).

It does not consider simple technical indicators (such as Bollinger Bands, MACD) which while useful can easily be "misleading" given the market cap of the company and the relative percent sensitivity of a $0.001 pip in price.

Since AKK is meant to be developing an oil discovery (their  self described world class, iconic Pathfinder project) which lies on the margin of the DJ basin and adjacent to a producing field, it is reasonable then to apply the metrics of measurement applicable to the E&P industry overall to determine operating metrics and possible valuation.


So lets get to Part 1 - AKK 2015-12 HY report released on 15th Mar, 2016.

Firstly just from a subjective point of view, I find the commentary to be contradictory to Qtrly reports (of Dec and Mar) but then I'm a firm believer in "trust but verify" and when the first part of that action statement is suspect then it very much becomes a judgement call.

By way of example would be sale of the TX EFS Birch property.
pg6: the sale of Texas Birch property completed for AUD$1.9M in all cash deal
pg18: Birch Eagle Ford property in Burleson county was sold to EnsightIV Energy Partners LLV  for US$1,050,000
pg20: The Texas asset was impaired by AUD$1,127,258 to reduce the asset to its sale amount.

While on the subject of impairments its also noted
pg21: the loan receivable from JV investment Kentucky Exploration LLC was impaired by AUD$1,934,990 to $0 as the company's joint venture may not be able to repay this loan.
This is to be taken in context with statements such as "low cost, shallow, high impact drilling program in Kentucky provides an excellent source of low risk and long life production and cash flow for the company"
And yet the loan is impaired to $0?

The above leads me to question the statement "no impairment was deemed necessary to its remaining Colorado and Kentucky exploration, development and producing assets".

The above of course is "non-cash" - its merely the reduction in book value (i.e. the capital (i.e. shareholder money) the company has spent on the assets) to the balance sheet. However those properties are the assets that provide the value in the company.

OK - back to the HY which shows clear signs of financial distress. Lets highlight Working Capital.



The change in WC from June'15 to Dec'15 is quite dramatic (IMO). Being negative really highlights that they needed cash and quickly. It would be very clear to anyone reading the HY that AKK was under financial duress - mostly due to the fact that had a maturing RBL from ANB and further compounding that is the following on pg25-note 13
"The Company was in default of its debt facility covenants as of 31 December 15"

Not a surprise (to me anyway given what has been occurring to other E&Ps) and this debt facility was maturing within six months anyway. Their only cure to repay that facility was to sell TX & Miss assets.  Still would not have been enough to pay trade creditors and drill and hence you had the Magna facility and Equity raising.

So something to watch for when the AR is released is what is the change in WC position (i.e. do they really have $2M is spendable cash).

In Part 2, I repost some of the material that was in an earlier thread to look more at the potential cash flows of the Pierre project.

@Autosime  is very good at reading company financial statements - perhaps he might like to offer an opinion.