Tuesday, June 26, 2012

GMX Resources ($GMXR) Investor Presentation at Global Hunter Securties Energy Conference 100 Tuesday, June 26, 2012

Today, GMXR gave a presentation at the Global Hunter Securties Energy Conference 100.

Basically, you can cut through the whole analysis by asking one question: what is the rate of return (IRR) on the company's Bakken wells? Do they have positive or negative net present value? That is, does the present value of the hydrocarbons they will produce exceed the cost of drilling each well?

The company doesn't like to dwell on those concerns. Instead, the metrics they ask you to focus on are things like total oil production (never mind the capital cost of producing it), or number of days to complete a well, or anything besides measures that indicate the true economic performance of the wells.

On slide 5, "Multiple Alternatives for Liquidity Being Pursued", they acknowledge that they will use "cash, equity and exchanges to retire the remaining notes". I've been pounding the table about their need to attack those maturities. I wonder how much longer they will wait?

On slide 20, they are helpfully showing the "Average 30 day BOE/Day" in addition to the initial production numbers. This helps to show something I have mentioned earlier: these wells have very sharp production declines.


rabbit said...

Are to rate drops After the initial output tests, the operator must decide on how to store and sell his oil. In the Bakken, there are few pipelines and fewer gathering systems. Thus, the operators buy 2500 barrel storage tanks at a great cost and orders a trucking company to come empty the container as often as necessary. Because of the lack of infrastructure and the fact that the trucker then has to load the oil on railcars or take to a further destination, the timing of having a truck at every well site in the Bakken every day of the week simply does not exist. Add to this equation that the majors, CLR, WLL, EOG, MRO, and old (BEXP) have already secured the available railcars and booked every day the available trucking then you will understand that for GMX, a 5,000 barrel/month output simply means that the truck came by the wel during the month. Not bad for a recent operator....

CP said...

That's hilarious. So, the real constraint on oil production is cheap steel tanks, not the geology?


We can get a 30,000 gallon tank for about $10k. The oil it would hold would be worth about 7 times that much.

There's a capacity market, and what causes constraints to clear are discounts. For a $5/bl discount you would find you had no problem taking away your oil.