$80 Oil & HK

Going to try and dovetail this with the prior thread.

Re the biggest risk to AKK,IMO that's our BoD followed by HK (especially if they have to writedown reserves and that causes debt issues)

If you invest in O&G companies the first thing you have to accept is they don't control the price of what they sell. What they can do is hedge their production - and HK certainly does do that (80% is hedged).

A (detailed) spreadsheet of HK - covering FY'13 then the past 4 Qtrs, TTM and then estimate for Q3 is at end

Why? Because our success is tightly linked to HK and HK invests about 40% of its spend in El-Halcon.

I've diverged from traditional EBITDAX by using the AVG HEDGED PRICE that HK receives for its production. (A question I've raised before - good to raise at AGM - is whether AKK's NRI of Birch production is sold by HK and whether or not AKK receives pro-rata Hedged or Spot pricing). I'm choosing to used the Hedged pricing as I really what cash is really be produced.

Apart from the normal ratios at the end, the PV10 is what SEC allows and noted by HK as of 31/12/2013. I was expecting to see this revised as of 30/6/2014 but maybe it will be in Q3 report. Up to the reader as to whether these ratios signal fair/over/under valued as compared to peers and your own expectation.

Also I've put in what HK says it spends in CapEx each Qtr - because what I'm interested in how much D&C Capex is needed to maintain production (independent of growing it). HK provided guidance that Q3 production would be about 42,000Boepd (which it was in Q2 also).

Bottom line is HK is way over-leveraged. Addicted to debt! For every $1 of Oil Reserves they have approx $1.60 of Debt.

IF (and I don't know if this is reasonable) you said that the common equity of HK is what is left after you add the PV of Reserves to current amount of Debt, then the common stock is worth nothing. There are of course 3 things wrong with that.
(a) The 1P PV10 is as at 31/12/2013 and it must be higher than what is presently shown (even taking out production)
(b) The Resource Potential is greater than $0 (so 2P + 3P + 2C) if its economic....
(c) The are Plant, Property and Equipment (i.e. the infrastructure + leases).

One final thing - VERY OBSERVABLE - HK's average selling price per BOE for TTM is $80.37 - in others words its already at $80 oil and is hedged going forward. Q3 & Q4 will be interesting to see.

One more final thing .... look at the increasing interest payments .....

Hope it makes sense - ask away if not.

PS - source numbers all taken from HK financial reports. Up to the reader to agree/disagree with interpretation and usage.