I think somewhere along the line you do have to allow for capex, whether its upfront or via depreciation, after all the wells do eat up all the cashflow for the first few years.
I also cant agree that payback is within 6 months. The cashflow of only $640,000 in the quarterly suggests to me that the first five wells still arent paid off, even after more than a year for the first.
Not so imo. If they are indeed producing an average of 787boepd as announced in the quarterly on a post royalty basis, do the maths, thats a less then 6 month payback per well on average.
If they are infact being repaid on an average faster then 6 months then youd be adding a CAPEX expense of 22% (22% is an average NRI htat i use, its not exact for each well, but works out ok) of $6.8M and then youd add 22% $6.8M to the Earnings. They effectively cancel each other out. Hence why i havent included it. If however well repayments where 3 months or 9 months, on average, i agree youd have to include the CAPEX.
I think when working out boe pricing, a more conservative figure than $95 might be appropriate, as at a 6 to 1 figure you're only getting about $40 for the gas portion.
Possibly true i had been working on 90 most the day and changed it to 95 to be in line with Euroz, who are quoting 95 as the figure achieved. Point taken on the 6:1 issue.
I'd agree with your 500boepd for the first year, however after this there will be the proportion of older wells producing substantially less, and this proportion will be increasing every year.
Totally agree this figure is currently 787 so using 500 is very conservative for now given there will be around 39 wells by june 30th, so essentially around 41 wells in H2 2011. 600 is likely to be more acurate for this year, however, unless new wells coming on line have and sustain significantly higher flows this average figure will decline each and evry year unless a huge amount of new wells are drilled in any year. Essentialy likely to decline each year.
From the rrc figures after nine months the average production for the first five wells is 257 boe per day (worked out on a 12/1 basis), so I would think the average for the second year from the older wells, would be struggling to be over 200 boepd even with improved techniques.
The quarterly states 787 as the average, thats the best information we have, so even though those older wells have declined, as they where gushing full bore, it appears, by the average of 787 they have learned and applied a lot. No point factoring in 257, when its already been done by the AUT in averaging 787.
These figures are all pre royalties. I agree that techniques are improving, however at the moment the quantum of longterm increases in production from these are purely speculative.
You have to remember, basically two years ago they where having huge problems doing multistage fraccing, with hopeless economics and almost as many technical failures as successes. To think that they have reached optimal flows and techniques already, is in my mind unthinkable. Having seen the improvements they have made already its astounding and yet they still havent even tried longer fracs with 30 plus sections, they havent tried the pulsating frac technique thats yielded others 25% increases in flows, they havent installed production tubing in many wells. Theres a hell of a lot of room left for improvement imo. And the information sharing arrangment will ensure these technical improvments are maximised.