Replies to This Discussion

Permalink Reply by Bob Zimmerman on February 6, 2016 at 5:21

strong>I can't claim money I never received>>>

Well, actually, you can in your case. The IRS will accept tax returns showing gross receivables less expenses. You just can't claim more expenses than income. In other words, you can't lose any money like a real business.

You can also work it the other way around and just report what you get paid and forego any expense claims. The IRS agents manual instructs that a Form 1099 misc. income report is not sufficient proof of payment.

The first scenario is more commonly accepted than the later, which can get the unwanted attention of agents unaware of the exception for 1099 reporting.

At over $53,000 of gross royalty revenue per month, the OP is strongly advised to seek out a competent oil and gas attorney to examine the charges against his revenue.

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Permalink Reply by Paul Butler on February 6, 2016 at 7:00

33 mmcf in a month? (m= mille, Latin for 1,000)

What a dog! 

Those EXCO boys excelled at one thing: losing/wasting money. 

The EXCO boys need to be selling used cars, teaching high school phys. ed., etc.  They need to get out of the patch.

Doing this in my head, at 10 million for well cost, with no drop off in production, with no expenses, the well pays out in 14 years.

In reality, it will never pay out.

Qui bono?  Villains.

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Permalink Reply by Skip Peel - Mineral Consultant on February 6, 2016 at 7:42

You can't judge a well by a monthly production figure unless you know what month it is in the production history.  Nor can you assume a well cost without knowing the spud date.  The cost of the average NW LA Haynesville well has dropped 15% to 20 percent over the last 18 months.  And even before then well costs were not averaging $10M.

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Permalink Reply by Paul Butler on February 6, 2016 at 8:04

I'm glad to hear that about the well cost.

Again, I'm not being a crank.  Long term damage has been done to the credibility of the oil & gas business with the investor community.

My associates trying to raise money in Manhattan are getting the hell beat out of them by the investor community.  Half the time they are happy to get out of meetings in one piece. 

Many investors are saying the whole shale thing was nothing more than a highfalutin Ponzi scheme. I don't believe that, but the investors are pointing to 2 trillion in market/enterprise value loss just in 2015 as evidence.

In PA some investors are saying, because of projected decline curves, that wells that are doing a billion a month (mmmcf) are dogs. Those wells cost 20 to 40 million each.

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Permalink Reply by Bob Zimmerman on February 7, 2016 at 6:44

Many investors are saying the whole shale thing was nothing more than a highfalutin Ponzi scheme. I don't believe that

Believe it. A certain CHK official during the heyday of Utica shale in Ohio said there was more money in flipping leasehold acreage than in drilling wells. It was acquire a huge play acreage and find large investors to take lots of it. Total in Ohio and Sinopec in the Tuscaloosa Marine Shale of Louisiana are two that got sucked by the spin.

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Permalink Reply by Skip Peel - Mineral Consultant on February 7, 2016 at 7:50

Early movers often found a ready profit center in selling undeveloped acreage in emerging plays.  It wasn't so much "investors" buying at the inflated prices, it was energy companies that "operate" (drill wells) or those foreign energy companies that wanted access to reserves and shale technology.  There wasn't enough room in the best plays for all the companies that wanted development rights so numerous operating companies had significant budgets for "exploratory" leasing and drilling to test new basins.  The TMS and the Brown Dense are good examples.  Much of the bragging about how much a company could sell its undeveloped acreage for was less about actually selling it and more about attempts to impress Wall Street analysts and stock holders.

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Permalink Reply by Paul Butler on February 7, 2016 at 8:04

That's very interesting Skip.

I saw action during the last 10 years with, mostly, newbies.  They made many fundamental mistakes, as newbies are wont to do, and did many deals, by my reckoning, just to be doing deals.  They knew the numbers didn't work ab initio.

What do you think of the role of companies formed by Private Equity, such as the ENCAP companies on the links attached hereto?  I think they are all, currently, winding things up and looking for windows to jump out of.

http://www.encapinvestments.com/upstream/current

http://www.encapinvestments.com/upstream/realized

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Permalink Reply by Skip Peel - Mineral Consultant on February 7, 2016 at 8:14

There are a number of large equity firms whose focus is the capitalization of small to medium size energy companies.  Although many of the companies are relatively new the few that I have had direct or indirect knowledge of have officers and upper level management with very strong resumes.  They are definitely not "newbies".  Although some of the equity-backed companies may be destined for insolvency it won't be "all" by a long shot.

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Permalink Reply by Paul Butler on February 7, 2016 at 8:25

We will know this time next year.

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Permalink Reply by jkw3 on February 8, 2016 at 13:13

Current drilling and completion AFE's for a Haynesville unit/alternate well can be just below $7M, especially some of the alternates drilled from existing pads.

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Permalink Reply by jkw3 on February 8, 2016 at 13:20

Is the subject well a new drill?  Most of the wells in the heart of the Haynesville play were drilled when gas prices were above $4/mmcfg.  Your current production  of figure 33 mmcfg per month (over 1 mmcfg per day) is not bad for a well that may have been in production for several years and whose decline curve has flattened out. It is likely that the well has already paid out.

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Permalink Reply by Jay Jay on February 9, 2016 at 10:41

No.  The well was drilled back in 2009.

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