RFE's reporting on well performance has been opaque at best. If management aren't going to give us the data that we need, then we need to find the best information available to make our investment decisions. The great thing is that our acreage is mingled in with that of Devon Energy ("DVN"). DVN give us some confirmation of well economics in the area through their reporting.
DVN released the following report a couple of weeks ago and it outlines the well economics for all of the major basins that they operate in. You can find the Mississipian/Woodford info on Slide 71.
This is what I have taken out of information supplied by both DVN and RFE:
- RFE's previously advised well costs of $3.2M per well look reasonable and in line with DVN.
- Given the stated Gas to Oil ratios RFE would be realising a bit over $70 per BOE
- Well payback therefore occurs at around barrel 57,000 assuming a 20% royalty cost
- RFE's independent reserves report has approx 260,000 barrels of production per well. A very significant margin above payback
- Devon expect to recover 300,000 to 400,000 barrels per well around our acreage from each of the Mississippian and Woodford. Plenty of upside on RFE's numbers as their understanding of the area develops.
RFE need to clearly explain to investors that much of the current spend is on infrastructure for full field development including saltwater disposal wells, gas gathering equipment, pipeline and electricity supply. Without this explanation people assume that all of the spend is on drilling wells and assume that the well investment doesn't stack up. This infrastructure spend will fall away significantly later this year and development spend will will be focused on drilling and completion.
It is time for management to provide the information that the market needs. Until they do the share price will continue to languish as the potential of the assets will not be understood.
RFE Price at posting:
22.0¢ Sentiment: Buy Disclosure: Held
