tag:blogger.com,1999:blog-4815867514277794362.post6661340271147991409..comments2024-03-08T06:18:28.125+11:00Comments on Bronte Capital: Further explanation re Gulfports quarterly guidanceJohn Hemptonhttp://www.blogger.com/profile/03766274392122783128noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-4815867514277794362.post-72858935556094191182014-05-27T15:29:14.533+10:002014-05-27T15:29:14.533+10:00Have they broken up their oil/liquids production a...Have they broken up their oil/liquids production and their dry gas production anywhere ?Ian Whitchurchhttps://www.blogger.com/profile/14896497136190817451noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-29857371499459913902014-05-12T03:13:45.860+10:002014-05-12T03:13:45.860+10:00Anon at 6:31pm -- good thoughts and appreciate the...Anon at 6:31pm -- good thoughts and appreciate the additional perspective. I was merely giving a shorthand metric comparison, since these development capex figures were Mgmt's projections for the entire project(s) and not a historical periods where the derivative on 1P may not be measureable.<br /><br />Thanks for the comment though -- I've added them to my notes for valuing E&P companies :)Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-63417555405172855762014-05-10T18:31:28.438+10:002014-05-10T18:31:28.438+10:00Anonymous 12:34AM, 1) finding and development cost...Anonymous 12:34AM, 1) finding and development costs are not calculated that way and in any case are not the whole picture, and 2) I think production growth is overrated (in general - not necessarily in the context of Gulfport).<br /><br />1) F&D costs are [Capex / Reserves Added]. The most conservative denominator is to take the added proved developed producing reserves (ie, a "fully funded" reserve - sell-side analysts sometimes use 2P reserves which are NOT a good indication of how much it actually costs to find AND develop a reserve). Most of the time, the industry takes 3-year averages, but sometimes for oil sands or other long-lead projects they will rightfully take a longer time frame. <br /><br />I agree it's very useful to look at F&D costs, but this needs to also be compared to netbacks (ie, the recycle ratio, which is a general proxy for free cash flow). Recycle ratio is just Netback / F&D Cost. You may have "low" F&D costs but if you are only adding low-margin reserves, then there's clearly some offset. Obviously a recycle ratio over 1x is good, since this implies free cash flow, but you'd be surprised how many companies fail or barely achieve this!<br /><br />To properly assess the recycle ratio, an analyst must have a sense of how high-margin the INCREMENTAL reserves are being added as well. <br /><br />2) Public companies tend to focus most on production growth, usually at any cost, in the "hottest" plays. I'm not denying that it is only production that ultimately leads to cash flows, but there are also ways a company can also boost production with seemingly-low capex. <br /><br />For example, they can just develop reserves they already have, as opposed to exploring and finding new reserves. This works fine in the short-run, or perhaps if a company has an extremely large inventory of proved undeveloped reserves, but eventually they will need to spend money finding new reserves (that will not yet be producing) and this is expensive. <br /><br />If you HAD to predict how much production would be generated from a given level of capex, a way you can estimate it is to take the inverse of their Proved Developed or Proved Developed Producing reserve life index, to get an idea of the decline rate. Let's say it was a 20% decline rate (ie, 36.5k barrels of annual production / 183k barrels of PDP reserves). <br /><br />If this company was producing 100boe/d in 2012, we'd say that, absent of any capex, they would produce an estimated 80boe/d in 2013. If they ended up producing 110boe/d in 2013 and spent $1 million in capex during the year, then we can estimate that it costs [$1mm / (110 - 80)] = $33,333 to produce one boe/d. Anonymoosenoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-58674810819145488602014-05-09T23:43:33.743+10:002014-05-09T23:43:33.743+10:00Yesterday an oil service company mentioned that tr...Yesterday an oil service company mentioned that traditional fracking techniques (e.g., hydro) have largely been unsuccessful in the Utica to date. Don't you find it strange that GPOR is spending all their capex in the Utica? It's reminiscent of another bad acquisition they made - in early 2012, GPOR purchased Petrobank's May River property for $225MM. According to PBG management, it was sold because it didn't have a great chance of economic success. Fool me once, shame on you...Analysthttp://www.buysidenotes.comnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-70129220928216835172014-05-09T11:14:53.238+10:002014-05-09T11:14:53.238+10:00Ouch, that's a pretty bad downward move in for...Ouch, that's a pretty bad downward move in forward guidance. I don't follow the company closely so was unaware of the change in guidance. Thanks for the clarification. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-989262951182318532014-05-09T00:34:54.656+10:002014-05-09T00:34:54.656+10:00Anon 10:57pm -- Huh? John just spent 3,000 words p...Anon 10:57pm -- Huh? John just spent 3,000 words putting it into metric form.<br /><br />BBOE / CapEx Spent = Period 0<br />vs.<br />BBOE / CapEx Spent = Period 1<br /><br />Metric going down = BadAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-15688480061070160792014-05-08T22:57:02.002+10:002014-05-08T22:57:02.002+10:00"it has been widely observed that the single ..."it has been widely observed that the single best measure of an oil and gas company management is their finding and development costs"<br /><br />How does one put that into metric form? <br /><br />Anonymousnoreply@blogger.com