Ann: Update - Consolidation/Split - AKK, page-29

@junior101

Given the (rare) cordial discourse presently displayed on the AKK forum between those that hold with a positive sentiment and those that don't hold no matter their sentiment, I'll provide some follow up commentary and leave it up to the reader to infer whether it is +ve or -ve.

1. I am open to having my point of view changed but it needs to be substantiated. So far no positive poster (including yourself) has offered CREDIBLE counter arguments to show why AKK is the remarkable investment opportunity that some (many??) think. Fair warning, I know how to read corporation financial statements (which are the source of truth), I know how bank lending works and I am more than a little familiar with O&G (and in particular the USA). Whether posters choose to agree or disagree with my interpretation and/or questioning is entirely up to them but they are not "johnny come lately pulled out of my rear end" statements. I may at times sugar coat it with some (wry or poorly disguised) humor but surely the mere mention of NPV 0% would rate at least a chuckle if not ROFL.

2. I too had have had many a call with Guy Goudy - but those were in more "promising" times (circa the first Pierre well and the good times with HK).

3. Do not be confused about debt. I'll go out on a limb here and say that debt and a company's capital structure is the most misunderstood thing on HotCopper by posters. If you think I don't know what I;m talking about - neither did the posters on SSN and SEA and it took some explaining. Whether or not AKK gets "debt funding" is all about the terms of the debt and its impact upon operations.

4. The "discovery". When I first became a shareholder there were quite a few here raving (that might narrow it down a little) about Pathfinder (felt it cow pasture back then and not much has changed. I bought in the time because of the EFS and HK farmin and exited when they chose to destroy shareholder value and their balance sheet). History often repeats.

5. "High depletion shale venture" vs conventional. My only advice here and it is not financial advice, is to look at the decline curve as shown by AKK in its investor presentation for Pierre wells.

6. Potential (bank) lenders will look first at the cash generating capabilities of the asset (given what IOG is producing (i.e. where in the decline curve are those wells) and the costs AKK is projecting) this seems "challenging". PIK is not conventional bank lending so what kind of covenants will there be?. Second they would likely look at the capital (equity) that the borrower has in the project - and this is where it gets interesting and AKK's balance sheet tells a "confusing" story. Thirdly they would look at collateral posted as security and not so much to "what it's actually worth" but what it can be sold for to clear a debt. Also, just as in personal lending - "character" is evaluated so what has been the corporate history of AKK with prior debt and access to capital markets.

So, were AKK to successfully redress such concerns and demonstrate they are actually creating shareholder value then I would happily acknowledge that they are doing so. Understand though I mean shareholder value and not some manufactured increase in share price, market cap or enterprise value all of which can be "managed".

To avoid any doubt, creating shareholder value means delivering residual earnings above their cost of (equity) capital. Corporate finance types will also tell you that adding debt raises a company's cost of equity capital so their job will get tougher when they take on debt - not a problem, right?

When its all said and done, good luck (I don't like to see anyone lose money, especially me).