AKK (ASX) Ann: Trading Halt

Originally posted by cmonaussie ↑

Shelcomm,

Yes my MC calc was a bit off (wishful thinking). $5M max for 20% - betting on "equity fund". Hedge fund might have some strings to it. Be nice if it were high net worth individual that knows his/her way around an oil company (I can see the T.Boone Pickens followers taking up a chorus). That $5M needs to last longer in this environment of only drilling must drill HBP leasehold or high grade targets. Plus the first $2M of that $3M would be used to repay the Bridge loan.

I think we'll see some deck chairs being tossed soon and hopefully the knife to to that 2nd tier you reference.

Re the JV farmin ... I'm not sure if I understand it fully. Here's what I was thinking:

1. HK has met its farmin obligations - so it owns 70% WI in the acreage

2. Regardless of who has what WI percentages, there would have been a primary lease term that the mineral rights owner granted and what conditions applied (e.g. a minimum number of wells). I believe that AKK advised on 29 Oct that 1,680 acres out of 5,000 were HBP (~ 34%).

3. So what happens if HK as operator slows down drilling and decides that they get a better return somewhere else in the 105,000 acres in El-Halcon than what they get at Birch. Think about it. It depends now on HK full cycle cost and relative production. Their acquisition cost for Birch was much lower than AKK's acquisition cost (can't count the cost of carried wells as HK gets all production until well has paid out). So the argument could be it didn't cost us much to get it and when it comes to choosing they may prefer to drill a potentially higher producer to the north of Birch (for which they also probably paid more to acquire).

4. If Birch lease is "relinquished" by HK (and I'm not saying they will or wont) I wonder what happens - as the mineral rights owner only cares that the wells are drilled. It could be that AKK loses as well. I don't think that AKK automatically gets the 100% working interest back. The lease may just expire and land owner get back mineral rights in any acres not HBP.

What do you think happens if not all acres are HBP by the end of primary lease term?

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This will be interesting to see "securing a cornerstone investor" seems a very nice way to put issuing a large stake at the lows when things are supposed to be going well. They implied on 4 Nov that they turned down debt funding because they didn't need it. So you'd hope there are positive aspects to this news. Somehow I doubt it though. AKK has shown some promise but any assets will likely only end up benefiting, or at least saving from losses, stakeholders other than Aussie shareholders.