I'm going to stick my neck out here, right on the chopping block if I'm wrong. I suspect the quarterly was about on par with what ELK had budgeted when they purchased Aneth. The reason I say this is they planned for WTI oil to be around the US$ 50 mark in 2018, the forward strip price they put in their announcement was $52.70 as per note 2 below.
There was a miss with Grieve commencing post quarter ( rather than mid/late Jan as Brad articulated) but with the ramp up of that field, they would be down 50000 barrels or so, or about $3 million gross revenue.
The increase in oil price that the unhedged Aneth production was exposed to for the 3 months has added about $1.8 million, with the net difference of approx $1.2 million . That is a revenue miss of approximately 4% . Would that be enough to send them to the market?
Additionally, in the quarterly, ELK mentioned that Aneth was actually producing 300 BOPD above budget for the quarter.
In all honesty, I doubt that this CR would be for balance sheet boosting ( unless this was their plan all along, in which case I would be a pit peeved). The only CR ELK have flagged going into the future is to US investors as part of a push to list in the USA. This will be accompanied by a share consolidation .
If this CR is for balance sheet repair, especially to help fund the $10 million post Aneth acquisition payment, then I will read it as a negative sign as it is contrary to what has been articulated. I will begrudgingly accept a raise to accelerate Aneth production but anything apart from and acquisition will mean a straying from the path , therefore a loss in confidence on my part and I will reconsider my investment.
My bet here is is a $20 million CR where they are paying US $50 million for Con Phil's 46 % of Madden, or something else continuing on the stated plan of EOR asset acquisition.
As a aside, I need to clarify the $4 million hedging cash loss for the previous quarter . I misunderstood how the hedging was reflected in the income statement. I thought it was an early close out of a hedging position to take advantage of the rising oil price , but that was incorrect. I assumed that the gross receipts of $31.8 million were after hedging was taken into account . The $31.8 million is pre hedging income . Being a swap position, ELK sells its oil to market and receives the FULL price, at the end of the quarter, it must pay the difference between the swap price and the oil price it received to its counter party. Therefore, until all the swaps are exhausted in 2021, there will be a cash hedging payment to the counter party if WTI is above the swap price.
Cheers
Dan
ELK Price at posting:
7.3¢ Sentiment: Buy Disclosure: Held
