silence before the storm, page-9

They have G&A costs of around $1m / annum so not too much to cover.

I reckon they will need around $50-60m gross to bring Aje Phase 1 online. I reckon this should cover the drilling of Aje-5, the completion of Aje-4 and tie up to the FPSO (which will be leased). That's around $3m net to JKA, lets say $4m which would be $80m if you want a contingency.

I cannot seeing them having a problem with gaining this sort of money. I would expect them to arrange a facility much larger than this, maybe around $20m, so this will cover Phase 2 (more oil wells) and probably some or all of Phase 3, though Phase 3 will be years off.

I expect production to start up somewhere around the end of 2014, and at around 10k bopd from the 2 wells which I think should be sustainable, that's around 500 bopd net to JKA, or at $100 / barrel, revenue of $17.5m annualised (allowing for some downtime. A cash margin of around 60% achievable so cash margin of around $10.4m which will easily cover G&A and will also help to fund exploration activities.

I would be disappointed if we had to raise capital for Aje so see this as an excellent asset for JKA.

Hammermet West is a little more inconclusive, they previously stated around $3m for drilling ST2, this may be enough, but seems a little on the low side at $20m gross, so I will assume a little more at between $4-5m to cover contingencies, so I think they need funding in 2013 of between $5m-$6m.

The convertible loan note was supposed to cover initially $3.5m, but upto $5.5m.

At the end of the October quarter, JKA had next to no net cash, due to the drawn down debt offsetting the cash they had in the bank, but they signed the farmout with Sterling in November, which included $3m in up front cash, so it would seem that access to cash wasn't necessarily a problem, assuming they could extend the short term loan facility.

Access to cash
$3m Sterling farmout
$5.5m convertible loan note
Total $8.5m

Payments
$1.25m G&A (15 months)
$5m - Hammermet West ST2

Even allowing for a bit of an overspend, then they would have enough cash to see out the year assuming they could be funded for Aje through an RBL.

Sure they will sail close to the wind cash wise if they didn't do anything else, but its not as bad as most seem to paint, which is why it surprises me when people state that JKA will need to issue another 50% shares etc, I just don't see why they would need this cash.

In terms of the RBL, note that APY (formally RIA) are planning on an RBL for Gazelle, which has lower net resources than Aje. I believe they are going for somewhere around $60m, so I see JKA having no issue with $20m, which should be enough to bring Aje anywhere upto around 30k bopd gross (1500 bopd net).

I think due to this misunderstanding in the market around JKA's financial position, the share price is where it is as the market is expecting a large capital raising, which I just don't think is required unless I have got something very very wrong.

I personally think the BOD have done a great job in managing cash and the only time when they have had their backs to the walls was throughout the HW3 drill when they were at the mercy of COE. This was why I was surprised and disappointed by the decision by the BOD to accept and recommend the TPT offer, though as both Bob Cassie and Scott Spencer have jobs with the merged entity then I see why they would do that.