Yes they need to reduce the third party cost structure for the production costs otherwise there is going to be no meaningful cash flow. The production cost estimates for FYq4 go up markedly and are unsustainable without significant production increase with no correlated cost increases. Right now Elk is basically a reseller with reseller margins which is not the basis for financing.
Elk will need 2 very solid production quarters with decent production from Grieve and no meaningful abatement at Aneth for the refinance to work. No one is going to buy into a producer at the margin, with risk of decline in flows and an excessive operating cost structure.
So as you have said, production numbers need to be up and third party cost structure needs to meaningfully change for this entity to be a go.
Allegedly management is getting significantly incentivized for production increases, more so even than on the equity side so I am sure we will see where their bread is buttered.
ELK Price at posting:
7.8¢ Sentiment: None Disclosure: Not Held
