Fundamental Financial Analysis, page-8

The following I consider as Part 2 - namely the potential (yes it is not a given not foregone conclusion) of the of the Pathfinder project Pierre Shale oil discovery.

One of the most important slides given in the recent investor presentation is slide #25 the "Projected Production for Pierre Wells". Numbers are not usually pulled out of thin air (was going to say something that rhymes with glass) and P10, P50, P90 are 3 sets of numbers often supplied when developing "Production Type Curves". So I will make the ASSUMPTION that their middle curve is P50 which has the meaning that there is 50% chance that at least that amount of EUR is recovered.

Also these curves are formula based and take into account all the available info. Since AKK would have this the next comment is a bit of "bag" - you left off the cumulative production curve and a corporate level decline curve. Not to fear however, I shall apply a proxy method and come up with "companion" slides.

Proxy method for cumulative production will use the midpoint production rate for the year. This is seen on my modified Slide #25 as follows:


Taking the midpoints from the LHS we'll simply multiply each by 365 to get projected annual production for Years 1 through 5. Graphically I'll just plot the annual and cumulative single well production on the same graph so you can seen the well declining and the cumulative production tapering off towards the projected EUR.



Something else we can begin to glean from this curve, especially as you overlay it with the planned number of wells forecast for development is what the corporate decline levels would be forecast at. For any E&P producer this is a critical number as it begins to establish the level of production required from new wells to replace this decline and from that they can estimate the amount of Capex necessary simple to maintain current production (referred to as maintenance capital and then establishes the company's capital efficiency (or intensity) - is a $/Boe number and not just text in a presentation).

That production model then can be plugged into a cash flow model such as below:



I will reiterate that this is a model is based upon:
a. AKK supplied Pierre well production estimate
b. AKK supplied Net Revenue Interest
c. AKK supplied LOE, Well Capex
d. uses AKK expected WTI benchmark as basis

This model also takes into account:
i. Local oil price differential (known)... not discussed by AKK
ii. Unknown incremental Capex for field infrastructure (put in as $0 so beware) ... not discussed by AKK
iii. Possible (probable?) incremental operating costs for transportation (of oil from wellhead to pipeline operator) and water disposable (either trucking or drilling of disposal wells). Set as $0. Not discussed by AKK.

This is the best efforts at determining the Free Cash Flow (after all expenses paid and Capex invested to maintain grow the business).

There are 2 numbers at the end show the resultant cash generated after 5 years of effort (and approx $24M of well Capex).

AKK presented a long term development plan ... what value has been created and how does that stack up against peers. Share price movement is a different discussion.