Hi Anto
In your calculations you have made the mistake of applying the oil price to gas converted to BOE.
1 barrel of oil is basically equivalent to 6000 cubic feet if gas ( give or take) but if you apply the oil price to gas converted to BOE you will go horribly wrong. When you convert gas production into BOE you also have to convert the gas price to BOE.
It is fairly simple. If gas is selling at $3 per MCF or $3 per 1000 cubic feet, then the gas price converted to BOE is $3 x 6 or $18 per BOE. So when you try to calculate the revenue for gas converted BOE, you can't apply the oil price of US$ 60 , but the US$18 gas converted BOE price.
a) In the announcement regarding the Herring well BRK said in the first 4 months of production the well produced 1.4 billion cubic feet of gas equivalent or 230000 BOE.
b)They were more specific when they stated the well actually produced 1.3 billion cubic feet of gas (BCF) and 10200 barrel of oil.
So if the gas and oil prices averaged US$2.8 per MCF and Us$ 50 for the 4 initial months production you could calculate
a) 230000 BOE x $2.8 x 6 = US$ 3.86 million for the first 4 months or
b) 1.3 BCF at $2.8 MCF = 1,3000,000 x US$2.8 = $3.64 million
plus 10200 barrels oil at $50 = $510000 giving a total of $4.15 million.
You can see that the numbers aren't precise but they do give you a ballpark figure for the first 4 months of around $4 million. BRK don't see any of that money until the well is paid out because the Merchant drilling facility get first dibs. If these figures were applicable to when the well was paid out, BRK's gross entitlement of that would be 18.2 % or $730,000, but that is before royalties which would take off about 20%, and you lose another 25% due to Merchant's equity back in after well payout. So BRK's net entitlement before production costs etc would be about 55% or $400,000.
You can't also then multiply that gross figure by 3 to give the annualised total because there is a decline curve which needs to be taken into account. BRK have given the time plot of the wells performance which shows the initial production and the following declining production. You could work out the production ( actual and and predicted ) if you could calculate the area under the curve for each of the oil and gas (integration of logs ... yuk , can't help you there) but we don't need to be this pedantic for of HC purposes
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BRK state the average well payout is about 2 years, so looking at the graph, (assuming production is as predicted) by the time BRK get any revenue from this well, post July 2019, it will be producing 30 BOPD and 3 MMCFGPD or 530 BOE.
You need to keep in mind BRK's business model is all about land , not production, and they (we ) will make serious money if they continue to build upon their success in getting into the right acreage.
Hope those calcs make sense
Cheers
Dan
(20min delay)
