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Earthstone Energy, Inc. Message Board

  • true_truth true_truth Feb 10, 2013 4:04 PM Flag

    Questions for the Board at ESTE

    1) Does anyone know whether the Q3 earnings report includes actuals for Oct, Nov, Dec, 2012, for production reported to the State of North Dakota, or whether ESTE has now changed it accounting method to a cash accounting basis for sales actually received and in hand?

    If the company switched its accounting methods, why did it do so now?

    I believe the company needs to clarify this. This report is useless without knowing that, and investors may make very wrong decisions based upon the answers.

    2) Was the accounting reversal true up of 4,918 barrels from Q3 fiscal 2012 (2011), an actual
    identical amount of over estimated production from that one quarter or the result of some larger
    over estimate in that quarter, say 10,000 or more offset by positive adjustments for under estimated
    production accruals in fiscal 2013 (specifically Q2 fiscal 2013)? Is this 4918 an actual for one quarter and only that quarter when it occurred, or a netting effect over a whole year?

    The answer to this question is very important.

    We need to get to the bottom of these questions if the report is going to tell us anything, other than it was not the quarter anyone outside the company expected.

    I would further caution insiders from trading in the stock until these questions have been made clear.
    The whole basis for actual production is at this moment cloudy to the public and only known by
    insiders who have prepared this report, and SEC filing.

    Lenders/Loan Covenants may have also been involved in any decision on whether the company had to go to a strict cash accounting basis, and this should also be disclosed, if it is relevant to the answers to the questions above.

    I will reserve my further comments for the time being.


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    • This reads like they're setting up for a public offering.

      "We have received numerous inquiries regarding the possibility of funding our efforts through equity contributions. Given strong cash flows, we have thus far declined these overtures. Our primary concern in this area is the dilution of our existing shareholders. However, going forward, given that one of the key components of our growth strategy is to expand our oil and natural gas reserve base through drilling and/or acquisitions, if we were presented with a significant opportunity and available cash and bank debt financing were insufficient, it is possible we would consider alternative forms of additional financing."

    • realinvestmentstrategies realinvestmentstrategies Feb 10, 2013 9:36 PM Flag

      You want to know whether the Q3 earnings report includes actuals for Oct, Nov, Dec, 2012 for production reported to the State of North Dakota. Well Ray said production from our recent drilling program should begin to be realized in the current quarter. You could assume from that statement he means that none of it was included in Q3, but will start in Q4.. But I don’t know why he isn’t more clear. The company certainly knows the answer, but for some reason they haven’t felt obligated to share it with the investors.

      In the past, such clarity might not have been a big deal. In fairness, this has been Ray’s style from an historical perspective. But considering the size of recent investments, this is a material issue to the company’s long term growth and value.

      The ask price is currently 17.95, less than Friday’s closing price, so it looks like the shares will take a dive. Quite frankly, I can’t conclude anything is wrong with the company, but on the other hand, maybe their investments might have been a total waste. How would we know from this? As usual there isn’t much explanation.

      As a result, many people might focus exclusively on the lack of revenue growth despite all that new investment.

      • 1 Reply to realinvestmentstrategies
      • The company's statements are unclear and potentially could be misleading without clarification.
        This question is materially significant. Whether they are still using accruals vs. cash accounting, and whether they booked all of the actual production for Oct., Nov., and Dec.
        vs. just what was reported to them at some cutoff date that we don't know is a material
        and significant, "materially significant" question which I believe they must address and clarify.

        We don't even know for sure whether they used accruals for oil. Only gas volumes have a footnote indicating they did. Oil does not have a footnote at all in the 10Q, but having loan covenants with quarterly tests to be met, may in practice in my experience restrict the use of accruals.

        Its a problem when investment doesn't show up in production and revenue,
        but its potentially more of a problem if it shows up and is not reported because of some accounting changes or methodology--- if that's the case, and investors end up getting whiplashed. If its all delayed but coming next quarter (which is what Ray may have inferred), we need the straight story. If its not coming, we need to know. If its offset by some past over-accruals, we need to know, if its never coming because its already in the production reported, we need to know. Make it clear.

        We need to know the answer to these questions.


    • The 4918 bbls should have been reported in the prior quarters but were not realized until the Dec 31st 2011 Q. That is why we had the apparently great quarter one year ago. They were just saying it made the comp from this year to last especially bad when in fact it was not that bad. They obviously make assumptions and when the checks actually flow in showing much more production, then they don't go back and change prior quarters, they just add it to the quarter that the checks flow in and actual revenues would need to be adjusted. This more than likely will happen again next quarter IMO. I am sure they didn't change to cash accounting... Remember, Ray has always been really conservative and I am assuming this is true with any estimates they have to make.

      • 1 Reply to financialadvocat3
      • Ray can report pretty much what ever he wants too because he controls over 50% of the voting stock. Also notice he is CEO, President, Secretary and acting Treasurer. The only other officer is an interim CFO. So this might as well be a privately held corporation and we all know that an minority position in a private corporation is not worth much until the majority interest owners want to sell, and why do that when he pretty much has a salary at what ever he determines he wants for the rest of his life.

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