Truth, in your February 4, 2013 post updating us on actual Q3 production from new wells, you listed nine wells, and we used this data to project production rates for Q3. While the process was good, I think we made some assumption errors that overstated our Q3 projection. And if we correct those assumptions, Q3 production was more explainable.
The data I’m using includes the slides from the annual report covering the year ending March 31, 2012, the Sept 27th press release summarizing that annual report, the Q1 FYE 2013 report and the press release on November 13 2013 explaining the new wells update. Of course significant clues are scattered over each of these documents.
For starters, three of the nine wells you listed were in the annual report on page 20, listed as part of the 5 wells on production this year. These are the Garmann, Sax and Nelson 11-2 wells The other six wells were listed on pages 21 and 22 as part of the 29 wells drilling or completing. Also consider from the Q1, Aug 9 2012 report, there was that statement about six wells on production as of June 30, 2012, for which production data was not disclosed. I infer from this that the incremental production included in Q2 and Q3 came from six wells, not nine. IMO the Garmann, Sax and Nelson 11-2 wells were already included in Q1 figures.
Also in the September 27 press release, we have the statement about 29 new wells with an average 4.2% interest. Then in the November 13 press release, we have an operations update of nine wells, the same wells you reported in your post. But again, we already know that three of these, the Garmann, Sax and Nelson 11-2 were probably reported in Q1, so the incremental data from Q2 and probably Q3 is 6 of the 29 wells.
Also, if you will note another fact from that September 27 press release, Earthstone’s working interest averages only 3.14%. Then looking back from the annual report slide, page 20 again, we see a 2.61% interest in the Garmann Well, a 6.5% interest in the Sax Well, and a 2.64% interest in the Nelson 11-2 Well. Back those numbers out of the nine wells, and you end up with average working interest of 2.75% for the remaining six wells.
IMO, we are still waiting for data on the remaining 21 wells.
Six wells came on before September, three came on in September, and six came on in November and December. I assume that the six which came on before September must have been in the quarterly
production. The Three that came on in September, I wondered if they had even been picked up in
Q2 production. Either they were because there was no accrual or they were not and that positive accrual was wiped out by something negative that ESTE had been carrying on their books for a previous over estimated accrual. Whether the six that came on in November and December were included is still a very
open question in my mind. Because of Ray's comments in the press release it is not clear. And the Johnston 7-6 produced 50,000 boe gross more or less in November and December by itself. About 1,500
boe to ESTE by itself. Did ESTE book this because it was public information with the state agency or did it not because the operator had not reported it directly to them and paid them? This is still unknown in my mind.
If you are clear on all of this, that's fine, but I think it is still not very clear, and I wish ESTE would clarify it.
There are still 14 of the 29 wells that we do not have production on. Eleven of those have come off confidential, have been drilled but are being completed. As far as I can tell the other three have been drilled but are on the confidential list still.
Perhaps, ESTE knew they could not beat the 68 cent quarter no matter if they had recognized all the production and gotten to at least the 35,000 boe range plus. The comparison against 68 cents would be still be negative, but the next one if they stock piled some production from last quarter and having more new wells this quarter they may get a positive comparison going forward. I don't know if this is what they are trying to pull off, or if they did this, but is about the only motivation I can think of other than keeping the stock price lower until 10 days before April 1st, when the stock options pricing for insiders will be computed.
I don't think you will see another quarterly report until several days into April, say the 5th or after, so if the price is low in late March, and they are able to post a positive comparison against year ago, it will go higher and insiders get to sell at a better level.
Call me cynical, but I am watching closely for any signs of stock manipulation, and unless ESTE can demonstrate it is creating some value, I think the next shareholder's meetings is going to interesting.
Truth, I don't think this should be over complicated. The company states in its 10K that..... Revenues from production on properties in which the Company shares an economic interest with other owners are recognized on the basis of the Company's interest. Revenues are reported on a gross basis for the amounts received before taking into account production taxes and transportation costs, which are reported as separate expenses. Revenue is recorded and receivables are accrued using the sales method, which occurs in the month production is delivered to the purchaser, at which time ownership of the oil is transferred to the purchaser. Payment is generally received between 30 and 90 days after the date of production. Estimates of the amount of production delivered to purchasers and the prices at which it was delivered are necessary at year end. Management’s knowledge of the Company’s properties, their historical performance, the anticipated effect of weather conditions during the month of production, NYMEX and local spot market prices, and other factors are the basis for these estimates. Variances between estimates and the actual amounts received are recorded when payment is received, or when better information is available....
So I don't think there is more than a month or two of overlap.
Instead, I would focus on their statements. They had announced only six of the 29 wells as being in production on an incremental basis. And from my analysis these six wells average a 2.75% interest. That comes to 16.5% of a well. But the 29 wells are expected to show a 4.2% average interest, meaning a total of 121.8%. The incremental change in BOE from Q3 over Q1 represented only 4550 BOE. So project that out over the total of 1.218 wells, off of a base of 26,999 Q1 BOE, we go to 58,104 BOE per quarter. That's right in the range you originally projected.
The reserve value of 1,895,000 BOE already suggests we are heading in that direction.