VH - equity most definitely owns the tail - which is why I think there is always a focus in investor presentations to highlight the Capex "payback" term - and a common rule of thumb always seemed to be 18mths was the target. With the declines of a shale well some would argue that might be roughly the 50% part production (as in 50% of EUR in 18mths...??). Again to the way I generally look at it, especially with debt, this explains the heavy using of hedging and makes the semi annual BB redetermination essential to managing the debt against the 1P PDP.
Rob79 - yes sure wrt to Depreciation of PP&E. Perhaps focus more on Depletion. This works differently to most businesses where you put money in, build something long term (e.g. building) so capitalize it and depreciate that building over time and offset those charges against operating earnings (rent) each year. In O&G in addition to that the Depletion is a big factor as the resource gets smaller with every Bbl produced (akin to the building "losing" some rentable sq footage every mth).
That OpEx/Boe needs to be looked at in total. Cah Margin first no doubt about it but Opex is up there and DD&A is added into that equation.
Just look at SSN's most recent 10-Q from Dec where on page 20 it spells out expense per BOE for the 6 months ending Dec'14. That expense is made up of:
Lease Operating Expenses: $24.69
Production & Property Taxes: $7.04
Depletion, Depreciation & Amortization: $22.35
General & Administrative expenese: $26.64
That totals $80.72/BOE.
If I were a cynic I would say that is SSN saying we need oil prices at $80.72 to begin to create value - which is simply not true. Because the measurement is per BOE the LOE/G&A/Taxes falls quickly with respect to production in the period of measurement. Not necessarily so with DD&A for all reasons mentioned earlier. Its a number to be aware of, especially how it is changing over time with Reserves value and production.
All these items are spelled out in 10Qs for good reasons (shame ASX doesn't have as stringent rules as SEC). I agree the numbers can be under/overstated - but lets assume the basic rules are followed. One reason for example I think the LOE might come in higher than expected this Qtr is the workover well activity that has gone on - that is meant to be part of LOE and so the expensed is this Qtr. BUT, what if a successful expensed workover increased the reserve booking for that well completion? Do the "Additional "Reserves" mean the workover should be capitalized? Guess that is part of "hide things".
Food for thought when talking about operating results.
10-Q out this week.
SSN Price at posting:
0.8¢ Sentiment: None Disclosure: Not Held
