AKK - why the share is heading up, page-8

Yeah I was living in the USA at that time. Clinton (Billy) got away with murder (literally) in policy and numerous other things. But back to oil.

Andy Hall is a trader worth paying attention to. When did he make that comment and what is his funds position now I wonder.

Worth keeping in mind is US Shale is only about 6-8% of total world production roughly speaking. It is responsible for the "glut" in that it is "new" source that rapidly added around 6MMBOPD in the last 5 years or so. L48 shale is also "Short Cycle" capital in that with current costs and technology improving flow rates, top operators are getting their capital paid back around 18 mths the top tier core areas. Vastly different to the big projects undertaken by Big Oil which are $10Bs and can take 5yrs to complete but deliver low decline production for 20-30 years.

So this becomes a game of capital. ZIRP made Debt capital cheap and lenders in search of yield took on much higher risks for their capital - and those notes are maturing and lenders want their money back (a few are doing blend and extend). Absent debt capital that leaves either cash flow or new equity capital (which AKK has done multiple times as it does not have cash flow and do not have the assets (that would be PDP assets) that would qualify as collateral).

That leaves AKK exposed to continued equity raising as it prime source of funding. Before anyone gets too upset that I am leaving cash flow off as a source of funding it is certainly possible for cash flow to make a material contribution (in complete agreement with @KOKO post) but I am going with the more likely probability that the EUR and and flows will not be high enough to deliver the cashflow needed to develop the field.

I agree with Bill Thomas in that $60 is more likely the necessary number.

These graphs begin to clear the the air wrt to rig counts and correlation to pricing:




There are a lot of DUCs - which are IMO the ultimate quick response reserve - that can quickly move the price back down as soon as we see oil over $50. These guys need cash flow and for the top guys $50 will pay a lot of bills and start working down their leverage.

Oil has always been a volatile commodity.

Good luck traders.