best we check this out with our Accountant...... it was sad to see Chinook Energy (CKE) approaching its historic lows last week. It was even more depressing to note that Peters and Co represented one of the sellers. Last time they were around it was on the buy side. Peters and Co is a Calgary based investment dealer that specializes in the Canadian energy business. Nothing much happens in the oil patch without Peters and Co being aware of it. As for the seller, he could be one of Old Chinook independent directors - between them they currently own over 8 million shares. The New Chinook dispensed with the services of these seasoned oil professionals leaving New Chinook with just one - Wierzba, P. Grant. He the one who we know for sure is currently selling. As I suggested in my post of September 2, 2018, he could well share my concern that CKE may not (unlike all its neighbours) have secured firm shipping commitments for its future production. Instead they may be relying on interruptible contracts. As a consequence, CKE may struggle to get all all its production to market. We just dont know because CKE has not seen fit to inform its shareholders on this important issue. The issue has been around since early 2017 so the Board should be aware of it.
CKE has also not seen fit to properly inform its shareholders as to maximum amount of production one could expect from CKE existing wells with all systems go. My estimate is that potential production is about 11,000 boe/d. It could be higher but who knows what the situation is with the legacy wells - there are 82 producing gas wells in the Martin Creek area alone. For one, this shareholder has certainly not a clue as their production potential.
In February 2017, Chinook exit production guidance for year end 2017 was 6,000 boe/d. In 2017 Chinook brought on line a further 6 (4.5 net) wells to bring the present total to 13 (11.23 net) operating wells. In total these wells should have the potential to produce about 9,500 boed/d a day - (see CKE May AGM Presentation). Add to that say 1,500 from the legacy wells and one gets to 11,000 boe/d.
As half of the independent directors on the New Chinook Board are accountants they should have a good familiarity with the concept of marginal costing. In particular they should be aware of the drag that failing to operate at full potential has on the bottom line. They can check with Elon Musk if they are unfamiliar with the situation.
Take a look at these figures for CKE immediate neighbours and compare them to CKE. To a degree they all have shared the same problems of low Station 2 pricing, production and pipeline constraints in 2017 / 18.
| BOE/D | Suagaro | Black Swan | Storm Resources | Chinook |
| Exit Production potential end 2018 | 19,825 | 26,800 | 20,000 | 11,000 |
| Exit production 2018 Forecast | 18,558 | 26,000 | 20,000 | 4,100 |
| Exit production end 2017 | 16,600 | 24,194 | 16,017 | 3,779 |
| Revenue | 21.00 | 20.00 | 21.00 | 17.75 |
| Production expense | 6.29 | 9.66 | 5.75 | 10.17 |
| Net back | 11.13 | 9.64 | 14.25 | 7.68 |
All these companies have secured shipping commitments for their future production. CKE as far as we know has not. All these companies are now operating at or near full production. CKE is not.
Lets have a look at just what effect this is having on CKE. Assume that at CKE
(1) Production went up to 10,000 boe/d. Thats about 1,000 boe/d less than what it seems CKE is able to achieve.
(2) Realizes average revenue of $20 per boe/d - thats the low end of what their neighbours are getting and NG prices are on the rise
(3) The net back increases to $10 with the benefits of the economies of scale. In an ideal world CKE itself projects $15.48 from its new wells - see August 2018 Presentation.
By increasing production to nearer its full potential, CKE would add about $25 million to the bottom line a year. Thats about 11c a share or over half CKE market value. This bears repeating - $25 million a year - 11c a share - or 55% of CKE market value. There is no reason for suggesting that CKE should be conserving its reserves. After all, it has to date only “booked” about 15% of its holdings.Theres lots and lots to go.
And the bottom bottom line is this.
Our Chairwoman is herself an accountant. She should have an eye for these sort of things. So could she please tell us miserable shareholders WHAT GOING ON ? (expletive deleted)