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Harry Johnson

Harry Johnson
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  • Chesapeake Energy: Managing Its Way Into Analysts' Good Graces [View article]
    Come, come children. Like Will Rogers said "We are all ignorant - just about different things."
    Jan 4, 2012. 10:54 AM | 2 Likes Like |Link to Comment
  • 3 Reasons To Buy Linn Energy This Week [View article]
    Hedges on natural gas have been beneficial to a number of companies during the past several years. I always wonder who the counterparties are that are taking the hit. Can't imagine any end users of NG getting into that saddle, so it must be the same breed of financial geniuses that gave us subprime mortgages, CDSs, CDOs, etc. using OPM. Makes it nice for oil and gas companies, but hard on investors who let these types run their money.
    Jan 3, 2012. 12:02 PM | 5 Likes Like |Link to Comment
  • Chesapeake Energy: Managing Its Way Into Analysts' Good Graces [View article]
    It would be interesting to see the cumulative profit (or loss) from CHK's hedging from day one. I'm too lazy to do this, but if someone does undertake the project, remember to include commissions and cost of capital to maintain the hedge. Exclude any open contracts of course.
    Jan 3, 2012. 11:48 AM | Likes Like |Link to Comment
  • Chesapeake Energy: Managing Its Way Into Analysts' Good Graces [View article]
    David: Think CLR has done some 8 lateral wells on 1280 acre units, both in OK in the Woodford Cana and in ND in the Bakken. Devon is also active in the OK Woodford.

    Used to think I was born 20 years too late to see the most exciting times in the oil industry. Now it appears I was born 20 years too early.
    Jan 2, 2012. 07:53 PM | 2 Likes Like |Link to Comment
  • Chesapeake Energy: Managing Its Way Into Analysts' Good Graces [View article]
    David: My last epistle was in reply to a request from Brian3917 on Dec 31. I somehow managed to enter it twice and in the wrong place, so that may suggest that my analysis is even less credible.
    Jan 2, 2012. 07:00 PM | 1 Like Like |Link to Comment
  • Chesapeake Energy: Managing Its Way Into Analysts' Good Graces [View article]
    I haven't examined any independent Engineers' reports pertaining to decline curve calculations for companies engaged in the development of shale and other formations that require horizontal drilling and fracturing (hereinafter, "unconventional wells"). CHK files such reports with its 10K, but does not include them in their annual report. I do have an opinion about decline curve analysis based upon 500 vertical wells my company completed in the Mississippi Solid formation in the Anadarko Basin of Oklahoma near the end of the 20th Century. These wells required fracturing in order to establish commercial production. Such wells behave in a fashion similar to unconventional wells; namely, a 50 to 70 percent decline the first year and a long, relatively flat decline of 10 to 30 percent for the next 20 to 30 years.

    Since decline curve analysis involves curve fitting, it is essentially a mathematical process. Thus, one could expect experience with vertical unconventional wells to be analgous to that expected in horizintal unconventional wells. Of course, the volume of product- ion is greater for horizontal wells, but the slope of the initial decline is comparable. (If memory serves, Southwestern Gas included decline curves in a recent annual report that illustrated higher initial production for progressively longer laterals, but the shape of the curves was nearly identical.)

    Some reservoir engineers do volumetric analyses in connection with decline curve analyses, but there is never enough data to support reliable calculations for unconventional reservoirs. The Barnett Shale in Texas has had enough wells on production long enough such that reserve calculations for more recent wells should be reasonably accurate provided that (a) initial production tests are accurate, or the wells have been on production for several months and (b) older wells are matched with new wells based upon those parameters. The foregoing should generally hold true for the shale plays now underway.

    The biggest problem associated with estimating reserves from a decline curve lies in picking the economic limit of a well. Since this is influenced primarily by oil and gas prices, an accurate picture of reserves requires the ability to forecast those prices 10 or 15 years out. Since no one has that ability, the SEC and the FASB have simplified the problem by letting engineers use some derivative of current prices. Conversion of barrels and Mcf to present value dollars further ameliorates the effect of a selection of an economic limit that proves to be incorrect.

    There are some litmus tests to help determine the ongoing validity of reserves, as well as other key data in oil company financials. I have a web site, http://bit.ly/uVlfeI that might be helpful. It has only had a couple of hits since I put it up last year, but I think it is still functioning. Data in the report mentioned is from five CHK's 10Ks through 2008 (I plan to update it after the 2011 10K becomes available). If the web site doesn't work and you are interested, let me know and I will get a copy of the report to you.

    Finally, I wouldn't bet the farm on hyperbolics, harmonics, and b factors, etc. If you punish the data long enough, it will show you what you want to see.
    Jan 2, 2012. 06:20 PM | 1 Like Like |Link to Comment
  • Chesapeake Energy: Managing Its Way Into Analysts' Good Graces [View article]
    I haven't examined any independent Engineers' reports pertaining to decline curve calculations for companies engaged in shale and other formations that require horizontal drilling and fracturing (hereinafter, "unconventional wells"). CHK files such reports with its 10K, but does not include them in their annual report. I do have an opinion about decline curve analysis based upon 500 vertical wells my company completed in the Mississippi Solid formation in the Anadarko Basin of Oklahoma near the end of the 20th Century. These wells required fracturing in order to establish commercial production. Such wells behave in a fashion similar to unconventional wells; namely, a 50 to 70 percent decline the first year and a long, relatively flat decline of 10 to 30 percent for the next 20 to 30 years.

    Since decline curve analysis involves curve fitting, it is essentially a mathematical process. Thus, one could expect experience with vertical unconventional wells to be analgous to that expected in horizintal unconventional wells. Of course, the volume of product- ion is greater for horizontal wells, but the slope of the initial decline is comparable. (If memory serves, Southwestern Gas included decline curves in a recent annual report that illustrated higher initial production for progressively longer laterals, but the shape of the curves was nearly identical.)

    Some reservoir engineers do volumetric analyses in connection with decline curve analyses, but there is never enough data to support reliable calculations for unconventional reservoirs. The Barnett Shale in Texas has had enough wells on production long enough such that reserve calculations for more recent wells should be reasonably accurate provided that (a) initial production tests are accurate, or the wells have been on production for several months and (b) older wells are matched with new wells based upon those parameters. The foregoing should generally hold true for the shale plays now underway.

    The biggest problem associated with estimating reserves from a decline curve lies in picking the economic limit of a well. Since this is influenced primarily by oil and gas prices, an accurate picture of reserves requires the ability to forecast those prices 10 or 15 years out. Since no one has that ability, the SEC and the FASB have simplified the problem by letting engineers use some derivative of current prices. Conversion of barrels and Mcf to present value dollars further ameliorates the effect of a selection of an economic limit that proves to be incorrect.

    There are some litmus tests to help determine the ongoing validity of reserves, as well as other key data in oil company financials. I have a web site, http://bit.ly/tUjrwJ that might be helpful. It has only had a couple of hits since I put it up last year, but I think it is still functioning. Data in the report mentioned is from five CHK's 10Ks through 2008 (I plan to update it after the 2011 10K becomes available). If the web sit doesn't work and you are interested, let me know and I will get a copy of the report to you.

    Finally, I wouldn't bet the farm on esoteric applications of hyperbolics, harmonics, and b factors, etc. If you torture the data long enough, it will show you what you want to see.
    Jan 2, 2012. 06:13 PM | 2 Likes Like |Link to Comment
  • Chesapeake Energy: Managing Its Way Into Analysts' Good Graces [View article]
    Pretty good explanation of ethane and ethylene on Wikepdia for those who wish to learn more about hydrocarbon mixtures.
    Jan 2, 2012. 04:25 PM | Likes Like |Link to Comment
  • Chesapeake Energy: Managing Its Way Into Analysts' Good Graces [View article]
    CHK's 10K for 2011 will be interesting to say the least.
    Dec 31, 2011. 03:40 PM | Likes Like |Link to Comment
  • Chesapeake Energy: Managing Its Way Into Analysts' Good Graces [View article]
    I guess the underlying disappointment for a lot of folks is the fact that a little less arrogance and a little more cost control would have put CHK's stock at $100 as the CEO promised a few years back. CHK astounded the industry early on by paying whatever it took to establish the position it wanted in various plays and other undertakings. This becomes increasingly risky as a company increases mass, particularly if debt grows with each new venture.
    Dec 30, 2011. 07:56 PM | 6 Likes Like |Link to Comment
  • Chesapeake Energy: Managing Its Way Into Analysts' Good Graces [View article]
    I know this is a gross oversimplification, but CHK isn't going to get back in the good graces of analysts, banks, etc., until the Company makes major reductions in debt and stops ridding the peg on their revolving line.
    Dec 30, 2011. 07:41 PM | 5 Likes Like |Link to Comment
  • Crunching Some Numbers On The Billion Dollar SandRidge Joint Venture [View article]
    Thanks, that answers some of my questions. Now that I think about it, the Mississippi Solid looks shaley in places.

    Don't mean to pry, but is that the Texas Tower on your logo ?
    Dec 29, 2011. 03:02 PM | Likes Like |Link to Comment
  • Crunching Some Numbers On The Billion Dollar SandRidge Joint Venture [View article]
    That is what I am referring to, but the SD play may be a slightly different animal. In previous activity, it was called the Mississippi Solid. Current play involves the Mississippi Chat. East of the Nehama Ridge, the Mississippi Lime is reported to be markedly different. SD activity is pretty much north of the previous Solid development - further up the shelf of the Anadarko Basin. Not sure there is any correlation of importance. Think what started me down this path is a statement by SD that recoveries would be better in the Mississippian than the Bakken. Don't think that is in the cards if (as generally believed) shale is the source bed of petroleum and petroleum in sandstones and limestones has migrated there from shales. Ergo; oil is in the matrix of shale, but not in the matrix of limestones. If a petrologist reads this maybe he or she can answer the question.

    P.S. to Fracjob: If the SEC knew the first thing about what they purportedly are supposed to do, they would require decline curves as a necessary disclosure. Instead we get obfuscation by the accounting and legal profession, rubber stamped by the bureaucracy.
    Dec 28, 2011. 10:47 AM | 1 Like Like |Link to Comment
  • Gulf Keystone Is Sitting On Billion-Barrel Onshore Oilfields [View article]
    Fearless Prediction:

    1) While Shiites and Sunnis blow each other up in Iraq, Kurdistan consolidates Kurds in northwestern Iran and northeastern Syria. Turkey helps because of 10 million turks in eastern turkey.

    2) Kurd's assist in unseating Assad. In return, Syria permits a pipeline from Kurdistan to the Mediterranean. Pipeline revenue helps Syria's economy and gives Syrian army something to do (guard the pipeline).

    3) Kurdistan exploits its 45 billion barrels of recoverable oil and becomes world's leading exporter.

    4) Increase in world supply from Kurdistan drops oil price to $40/barrel, wrecking Russia's economy, puts a big crimp in Saudi prosperity, and harelips U.S. Shale developers.

    5) U.S. State Department and other Washington types try to screw it up, but are unsuccessful.
    Dec 27, 2011. 12:02 PM | 2 Likes Like |Link to Comment
  • Crunching Some Numbers On The Billion Dollar SandRidge Joint Venture [View article]
    I'm just wondering if the oil in place in the Bakken isn't substantially higher than that in the Mississippian. The Bakken probably contains a lot of Kerogen and some Kerogen has very high porosity. Memory is a little foggy on this, but I don't think the Mississippian contains any Kerogen. Think Fracjob is right about decline curves. Also think this is because the Mississippian oil is only in the natural fractures; whereas, the Bakken is tapping oil in the shale matrix. The technicalities of this are over my head. Sometimes technicalities can bite you in the butt.
    Dec 27, 2011. 09:31 AM | Likes Like |Link to Comment
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