Lots of articles etc about shale players that can operate profitably at WTI $80. That's great and EOG, MRO, COP, DVN, PXD all can (mostly due to size and diversification) - but what about HK? That's what we need to figure out.
So this is a little bit of a guessing game but I've used the HK Qtrly report for period ended June 30, 2014
Total BOE produced in the Qtr = 3,827MBoE
Average price received all = $84.63
Revenue from operations = $304, 212,000
I broke it down and Oil accounts for 93.9% of revenue, NGLs 2.9% and Gas 3.2%
HK notes that average of all prices received are:
Oil $94.01 per Bbl
NGL $36.25 per Boe
Gas $5.15 per Mcf
and overall avg is $84.63
During the period 1 Apr, '14 - 30 Jun'14 estimated base index price oil is $100 (this is my baseline).
What I am trying to estimate is how well can HK whether $80 oil.
If the index was $100 and the avg HK notes as received per BOE is $84.63 then if the index was at $80 the overall avg is $67.70 per BOE.
If production remained the same, then I can used the exact same costs per BOE (technically not because production taxes would be less but we are just estimating)
HK reported Total Operating Cost/BOE = $60.05/Boe (which includes the DDA expense of $60.05) but excludes the interest cost of $9.85/BOE (this is a BIG NUMBER)
So at this stage of operations we have Revenue at $67.70/BOE and costs at $69.90/BOE (so they are losing $2.20/BOE produced).
Bear with now ... but to keep production flat they have to spend D&C Capex as wells are declining.
So I think their Q3 wont look to bad - still should show +ve operating income but a loss after interest expenses and hedging. Debt will likely have increased as will the interest expense but then so has the MBOE produced.
Be very interesting to read their Qtrly on how much extra debt came on and the interest expense $/BOE.
Luckily, HK has plenty of liquidity provided they are not breaching any loan covenants.
AKK on the other isn't facing these concerns (yet). Our biggest -ve is our G&A$/BoE expense.
AKK Price at posting:
1.3¢ Sentiment: Hold Disclosure: Held
