Monday, February 11, 2013

Another GMXR Press Release

Today after hours, after the 17 percent decline.

"The Heiser 11-2-1H well, located in Sections 2 & 11, Township 145N Range 99W in McKenzie County is currently producing with a peak 24 hour flow rate of 3,268 BOEPD. The Company has a 66% working interest in the well which targeted the Middle Bakken with a lateral length of 9,620'."
I discovered last year that initial production numbers for GMXR wells are basically irrelevant. Using initial production as a metric is predicated on the assumption that if one well has an IP of X bbl/day and another has an IP of 10X bbl/day, then in six months the better well will still be producing 10 times as much per day, that the better one will produce 10 times as much over its lifetime, and that it is therefore worth 10 times as much.

While GMXR wells with higher IPs do have higher production after four months, the production numbers after four months are compressed into a tight band. Meaning: a 10x difference in initial production implies a month four production difference of less than 2x.

This well is still on confidential status with the state, so we have no actual information that would lead us to conclude that this is a good well. The number that GMXR quoted is "barrels of oil equivalent", which treats an MCF of natural gas as 1/6th of a barrel of oil, even though the actual price ratio is about an order of magnitude less favorable than that.

Personally, if I was running a company with secured debt yielding ~20 percent and unsecured, earlier maturing debt yielding 40 percent, I would be much more forthright with investors in press releases, lest people think I was cherry picking good news in a manipulative way to stem share price declines.

No comments: