The focus on increasing revenues misses the point that the...

The focus on increasing revenues misses the point that the company does not make a profit on these revenues and, in the current price environment, may never make a profit. It’s all down to well economics in the end, and it is still far from clear that the ‘average’ well is economic.

Total costs this quarter to maintain ~8,300 boepd were $114/boe. Revenues were $78/boe, which shows why they are not making any money yet. Drilling costs were $64million which resulted in a quarterly operating cashflow loss of $43million. This continues a series of cashflow losses each quarter, which appear to trending higher each quarter

With wells with initial declines of up to 50% per quarter, you have to drill & complete a large number of wells each quarter just to maintain revenues at existing levels. And the higher the total rate you have, the more wells you need to complete just to keep ‘standing still’.

Chesapeake is a good example of the profitability of shale plays, although Chesapeake is more ‘gassy’. Although quarterly revenues are measured in the ‘billions’, they are spending more on drilling each quarter than they make in revenues. Everyone seems to focus on revenues, whilst ignoring the colossal costs required to maintain rates. Their huge cash position is entirely supported by debt and cap raisings and, at these commodity prices, the business is fundamentally un-economic. However, having seen Chesapeake’s share price performance in its early years, I would imagine that AUT will keep going from strength to strength!

Good luck holders