Post Consolidation, page-101

Maybe Tassie.... but don't invest in O&G. It's 2.55am for you guys as I write. Dow is up 88pts and WTI is down to $75.80 (was $75.41). And O&G blue chips are down. The supermajors XOM & CVX are down. The super independents COP, APC, APA, MRO, HES are down. The N.A.major shale independents EOG, CLR are down. And I could go on with large cap, mid cap and juniors like Halcon. All down!

I think this paragraph says it all - written by Richard Zeits.

"The sharp decline in the price of oil creates valuation uncertainty across the entire E&P sector. The concern is that the move in the commodity's price may reflect the onset of a systemic oversupply in the oil market that can only be corrected through supply destruction by a strong, and possibly prolonged, negative price signal. If such interpretation proved accurate, shale oil stocks - such as Halcón - would face a challenging macro environment that could extend over time."

So the choice becomes is there a prolonged period of low prices coming that creates supply destruction (solving the oversupply) or is this temporary down spike that will correct in the near term - like what CEO of CLR thinks and made his bet by monetizing all hedges


US Shale supply destruction though has consequences. Be careful what you wish for is the theme of many articles in the press....
http://news.investors.com/111214-72...st-long.htm?ven=yahoocp&src=aurlled&ven=yahoo


A1 is no better at picking stocks than you or me. I'm reminded of NSE and I posted a lot on why their entry to EFS was no such a good idea. I was a holder and "get out of Dodge" was the sentiment from most. I even posted that the thought off ever increasing oil prices was silly. Had major debates with a poster - where I suggested we'd see under $100 before he would see over $110. Then came the $90s, $80s and $70s.

IMO we are seeing a RERATING on typical O&G E&P multiples that puts a risk on "supply" and "price" and "location" and "Capex".

I'm holding plenty of (US) O&G - where only Woodside and Santos would be a peers (COP, CNQ, DVN, CHK). The reason to hold those is very different to anything we discuss here

Also keep a handful of mid size and junior (ranging from $5B to $500M EV). So AKK with $25M MC is much smaller but the reason for investing was could it grow to $500M in MC (leaving debt out for now).

So ask yourselves, WHEN and HOW MUCH CAPITAL will AKK need to grow current production from where we are now to 5,000 boepd - which is the"old" $100,000/boepd. If this is rerating down to $60,000/boepd then AKK needs to produce 8,000 boepd.

Now I mean production to AKK NRI! No BS about field production blah blah. That's going to take a lot of time and you can sort of make projections about how many wells needed (at 30% WI in EFS) and the corresponding Capex.

Also ask yourselves how much 1P Reserves (again that's all I care about and I've pounded the table that lenders don't care about 2P or 3P or Resource) will AKK have end Dec'14 and Jun'15. If you can't grow those reserves and raise the SEC NPV10 valuation your lenders wont help. I believe I've said that all along.

A1 provides an alarm - but its just noise if don't know what the alarm is about (fire, tornado, EMT,...). Had A1 alarmed on oil price, oversupply, drilling curtailments and so then he would deserve more kudos.

A1 does have a significant point though --- "Time is a killer for AKK" - Time is a killer for all shale companies (small or large) where their operational cash flow is less than Capex making them dependent on debt to achieve scale.

Current debt doesn't care what the oil price. Lenders only care about borrowers making repayments and paying back the debt and heaven help you if you can't. That's why so many US shalers issue "junk bonds" (unsecured notes) because they typically are very covenant light. It providers the needed liquidity.

AKK is both an explorer and producer - hence the term E&P. Their EFS is pure development risk with the JV with HK (problem is the terms - with low oil price the APO will stretch out). Pathfinder is still exploration until AKK can show real results - that 1 well is not enough and they spewing Pierre well is what ?

It's speculative because of capital access and how dilutionary it may or may not be.

Gamble responsibly.