switchmullet, There is a major difference between NPAT and...

switchmullet,

There is a major difference between NPAT and cashflow. The AUT presentation refers to NPAT. I’m referring to “cashflow”, which is money remaining each quarter after all costs are deducted from revenues. This is different from NPAT which amortizes the CAPEX in the DD&A term. DD&A in 1Q is reported at ~$11million; however, they actually spent over $100million CAPEX in 1Q.

AUT report an NPAT of ~ $18/boe. However, this is no indication as to whether they make any “free cashflow”. In a conventional business sense, NPAT is usually a good indicator of profitability because you are looking at an initial upfront CAPEX, which is then “paid off” over a certain period, resulting in ‘free cashflow’ at some point. However, in shale oil, the drilling CAPEX requirements are ongoing and substantial, for example AUT are spending ~ $450million in CAPEX in 2013. But these large on-going costs are ‘hidden’ by the DD&A element in NPAT.

So the NPAT looks positive, but there is actually no positive cashflow and in fact AUT makes a substantial loss each quarter, which is why they must continue borrowing huge amounts to support their drilling program. And this happens each and every quarter for AUT.

If you exclude borrowings and acquisitions, AUT made a cash loss of ~$76million in Q1. So they are making a massive loss even though they are producing 19,000 boepd. This has to be concerning.

Almost all shale oil/gas companies report healthy NPAT (Continental, Rex, Whiting, Halcon for example who have been producing for much longer than AUT), but a quick examination of their finances shows that they actually make very little or no cashflow each quarter and their bank balance is entirely supported by borrowings (i.e like AUT). This is unsustainable in the long run (in the current price environment) and the result will be similar to what happened to Chesapeake/Petrohawk, unless the commodity prices improve.

The most basic commercial issue is never addressed by AUT – i.e when are they going to make cashflow and a return on capital invested?