RE:Time to call home againPeterM1 wrote: In my opinion some of the blame for the recent 15% decline in the share price and analyst downgrades can be attributed to the inadequate corporate report CKE issued on the 17th. Lets take a look at it.
Right now the primary issue facing CKE (and all other producers) is cash flow and cash on hand. It would have been easy enough to have provided shareholders with the cash balance at end 2017. Failing that it could have provided us with sales, or even average production, for the fourth quarter. Instead shareholders were tossed these useless snippets. Exit production was 3,572 boe/d and peak production was 5,170 boe/d. (The latter raises the immediate question - should we abandon the previously anticipated end year production of 6,300 or was 5,170 figure a throttled back number? )
Given only this information, shareholders, analysts and the rest can only take a wild guess at what the cash flow could have been.
Lets say optimistically average production fourth quarter was 4,000 (up from 2,776) and that net back was $9 (up from $7.33) - then inward cash flow could have been say $3 million. Add to that the $2 million it received from the tax investor and you have about $5 million.
By my calculation CKE would have paid out $8 million in budgetted capital expenditures to which one must now add the cost over run of $4 million for total cash outflow of $12 million. Net cash flow then for fourth quarter would then be a negative $7 million.
Deduct this $7 million from the $15 million CKE cash balance had at the end of the third quarter and year end cash on hand could have been as high as $8 million. If my numbers are correct - and you should check for yourselves- thats not bad considering all the unexpected problems the company has had to face.
Next one needs to try and guess at the what we can expect for the first quarter of 2018. Again CKE provides with a couple more cryptic clues to try puzzle that one out. We are told:
“Chinook has currently has only 3 (2.5 net) wells on production”
The reader is now left to guess whether the reason for this is cold weather or the Enbridge Oak pipeline outage. The Enbridge outage was caused by a landslide back in November 2017. Seeing that CKE was still pumping in January it seems that they must be doing something with the Nat Gas. They could be redirecting it (into Martin Creek?), reinjecting it or otherwise somehow storing it. This could account for the somewhat strange statement in which CKE informs us that when the Enbridge pipeline reopens “Chinook may flow its complete well inventories” Who knows? The main thing to know is that as long they keep pumping they are producing Condensate and it is Condensate which accounts for 40% to 50% of their revenues. My understanding is that it gets shipped by truck. Guestimate for net cash flow first quarter? I would say about $2 million but, as I said, its a wild guess.
Finally best news in that report was the announcement that they would be drilling two vertical wells That means (to me anyway) that they intend pursuing the same multi stack approach on the Martin Creek lands that Encana is having so much sucess with down the road. If I am right, why dont they tell us this is the objective?
Canadianfemme - sorry to trouble you again - but could you please call home and try to find out just what the heck is going on.
Thanks, Peter, for that very thorough review of the implications of the recent update. A few points occur to me, and I'd be happy if someone with more specific knowledge might chip in and correct and/or clarify.
First, on my reading of this, I assumed that whatever the problem was with Enbridge's "Oak" pipeline, it seems to have compromised, but did not completely cut off Chinook's production: that there are other ways to get gas out towards Aiken and TCPL or Alliance (say) rather than to McMahon via Enbridge. Thus the 2.5 net wells still producing are getting their product out some other way. Might their exit production of 3,572 boes be what their takeaway capacity is without Enbridge Oak? (I suspect that there is some key fact here that I"m just not geting.
Second, I don't think its possible to get the condensate and NGLs from these wells without producing the gas that it's a part of. And at least part of the process happens at the gas plant, which can only happen with the pipeline in place. So if the gas production is cut in half, so are the NGLs. This should mean that 1Q cash flow will be impaired.
Third, on the cash on hand at year-end, I think we have to factor in the receivables and payables reported for 3Q, which should mean not +$8m (your estimate) but -$2m, which is roughly what the company was projecting, but it looks to me like the compressor went over budget and their income for December must have been impacted. So -$4m? All this, of course, will be made clear when FY numbers are released.