TBE excellent post mate, you have made me look at this business...

TBE excellent post mate, you have made me look at this business because of it so here are my balanced thoughts for everyone from an outsiders perspective. I hope that you see that my comments are critical and in the best interests for readers.

Outsiders view here (lets show some balance):

Just had a read of the qtly and although the company has shown some success, it is somewhat poor and this is why you are seeing little interest at the moment; not to mention the cash flow problems that are evident. Lets look into things once at a time.

1.
Saying this, first, I realise that the birch drilling program is to evaluate the eagleford formation characteristics; thus from this point onwards (If I am correct) the company is going to be actively targeting this formation. I dont want to be too much of a critic and realise that most of your production has stimulated from vertical wells and with the "potential" of drilling and fracking horizontally through the eagleford shale could see better and much more sustained performance than whats current. I see why the company paid 1.25 million for the lease extension based on the prior work conducted however, with the return on investment for each well drilled, I would like to see that the company deploys its capital into other fields such as Colorado and the Cooper Basin going forward.

2. Cashflow:
Positives: Management have saved 1 million in non-essential costs for the business. Management are actively trying to return value to shareholders by buy effectively performing on their timelines however, administration costs of ~500k are more than total receipts.
Negatives: The company reported net 128 BOE/d for the entire december month from several wells; personally I would like to see month by month production rates for the company. You guys received less than 400k in cash inflow from your "successful" well programs for the quarter. Compare this to the cash drain from your exploration program which cost over 8 million. It is of my opinion that management will conduct a capital raising this quarter due to the aggressive nature of the exportation program.

3. Pathfinder, Colorado
Positives: Good pressure but can it be sustained? As stated earlier, 30 day and 90 day production results will say a lot for this asset and the proof will be in the pudding. I think that Pathfinder adds exciting and much potential to this company. Lets say at 300 BOE/d per well (at most long run) you should see cash inflow potentially increase to cover administration fees.
Negatives: How much does one well cost and what is the payback period? What is the drilling program for Colorado? Pumping equipment won't be installed until at least February further delaying the cash inflow.

4. Cooper Basin
Positives: Well known area and great partner
Negatives: Not fully carried by beach. Beach only pays the first 1.75 million share of AKKs 50% WI. How much more will they need to drill this well?

Overall,
I see a massive capital drain for the next two quarters at least. I think that the company's best assets are Colorado and Cooper Basin. I would not be surprised to see this company go down below 2 cents again in the short term. Capital raising will be below 2 cents, thats for sure. This is one of those businesses with a high integrity management teams that has been unlucky and have been hit with the hard end of the stick.

Current market value = 30 million - 4 mill cash = 26 million. I view this is slightly over valued at this point in time and not investment grade for me. Saying this, if your happy to stick with this one for a year or two, the reward is there. There is clearly market cap upgrade potential by many factors but that won't happen until the company starts making substantially more money and see a ROI that is much higher than todays.

Also, with inevitable capital raisings to come to develop the companys well programs (no reserves so cant see reserve based lending), at what share price base will be the bottom to when the company begins to grow? For example, at an extreme case, you currently have AKK valued at 2.3 cents for a market cap of 30 mill but with further dilution and limited cash flow generation, you could potentially have a 1.3 cent company valued at 30 million before the management team gets it right. I am no guessing man with timing the market but currently with more uncertainty than reward surrounding the future development story (what are they drilling? when? how often? how will they finance the wells? long term, how much will they add to the top line?), I do not see the timing to invest now.

Will be interesting to continue to watch the Colorado development story.

Good luck all.

Cheers,
UnclePanda