a watched kettle never boils

Especially when there is no water in it.


Look back over the last 2 years. In Q2 2011 production was 617 bbl/d. Since then they have raised $68mln from shareholder and received $29mln revenue. They have spent $51mln and taken production to 606 bbl/d. Lets assume that because production is more or less the same (slightly down but lets not split hairs) as it was in Q2 2011 the reserves are the same i.e. they have replaced all the reserves they have produced from Q2 2011 to Q4 2012. The replacement cost of those reserves on a cash basis (which does include G&A and equipment they have purchase) is $164/bbl.

$164/bbl full cycle replacement cost - they are running a massive loss. No doubt the band of merry men will argue that drilling and workover equipment shouldn't be included - fair enough reporting is totally opaque so I don't know how much to exclude but if I take out $15mln for equipment purchases replacement cost is $116/bbl. So still ripping up shareholders money.

What a joke of a quarterly....to paraphrase:
'we are a development company'
'we are an exploration company, which is uncertain and we will drill lots of dry wells while we figure out what is going on'
'we have lots of reserves and are 90% certain we will get out more than 102mln bbls'
'we are figuring out where the edge of the field out by drilling dry wells even though we are 90% certain we know where 102MMbbl are'
'we don't think we've drilled enough dry wells yet so we may drill some more'
'we've had a revolutionary idea to not intentionally do things that are uneconomic - hopefully that will help'
'Gulf South have did have $100mln to farm in now they've got $4mln, maybe they'll get some more and give it to us, maybe'

Spot the inconsistencies/changing story line. The number of dry wells are just not commensurate with the proved reserves they are reporting. Further as has been pointed out by multiple posters there can be no question about reserves being economic, by definition reserves are economic and if MAD are drilling wells that are uneconomic then the reserves are not there.

Can't wait for the band of merry men to tell me why I am such an idiot, don't know anything about calculating reserves, have a massive ego, am blinkered etc etc etc. I would like some properly reasoned argument, not just 'I met management and they seemed really nice therefore it's all going to be great'. As for those saying it takes time, of course it does but generally you go up a learning curve, drill your best wells first then results start to deteriorate until incremental wells are subeconomic. As you can see from the increasing proportion of plugged non-economic wells we are already heavily into the deterioration phase and this is going to get worse going forwards (as you would expect for fields first developed in the 1940s).

Only concerns for those short is if one of the high impact targets come in or the Gulf South deal expands. As per my previous posts based on the wells drilled in the area the chance is 6.5%. Gulf South has gone from $100mln to $4mln with maybe more in a matter of months. I am willing to run both these risks.

Short