Hey Dan, thanks for going through the quarterly in more detail and fine tuning the numbers.
Without doubt, the hedging is hurting, so much so that they almost would have made a profit this quarter.
Of course, as you have discussed in your other post, ELK has bought a very long life asset.
This year, it could be argued is a bit of a write off. i.e. Any profit is simply going to cover interest costs, plus refinancing costs, plus hedge losses etc. 1 year from 20 is not a big issue, except for not supporting the share price in the near term.
I did think very hard over the past couple of days and tried to include Grieve in my calculations, and I came to the conclusion, that even with the high profits of Grieve, ELK have addmitted that production rates for Calendar 2018 will only be around 1100-1200bopd, so... 75% of that is approx 870bopd, even at a profit of US $45 a barrel, will see them make $8m, by November (the next major payment of $10m).
Your second post is excellent and basically goes through why I could not push the buy button, because, ELK is going to be treading water for at least 8-12 months. Yes, once re-financing is done, next $10m payment is done and Grieve starts to increase its production rate, the company will look vastly different, plus the very low hedge will be much reduced (which in itself is a big deal).
If the POO stays even just around $60 USD, the refinance will def happen and who know, if the POO got to around $80 USD, then ELK will likely be in a much better position come Nov, but, I think it will still be tight. So perhaps one more capital raising? (share consolidation?) etc.
Long term, ELK looks amazing, but.... there is risk and, I cannot justify holding right now. I will probably miss the big run, but I am ok with that. I have done all I can to balance my view of the pro's and cons of ELK. Huge potential, but has to tread water for now, before it can metamorphis into the beautiful butterfly.
Good luck Dan and co.
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