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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: dDye who wrote (41903)	3/22/2011 12:57:49 PM
From: Paul Senior	Respond to of 78758

Thanks for the link, dDye. It's good to read the other side of the the argument for shale oil and VOG in particular. As a VOG shareholder, I find the article very scary (the intended affect of course).

To: dDye who wrote (41903)	3/22/2011 1:16:10 PM
From: E_K_S	Read Replies (1) \| Respond to of 78758

Hi dDye - Perhaps my estimated guess for VOG's 2011 production is high by as much as 100%. According to the Blog article it is not unusual to see a 60% decrease in the barrels of oil per day after the first year. I am not too sure if the Niobrara region wells have a similar drop off in production but I would assume there would be some "standard" amount. The bigger question is in the out years does the company account accurately for their well depletion allowance. In the case of VOG, they only have .74 net wells producing so at this time it is not an issue. However in the longer term total reserves could be overstated if accounted for incorrectly. Therefore, an eye on management's reporting here is critical especially in light of how NOG does their accounting. As a side note, several years back I owned Royal Dutch Shell and over one weekend they issued a press release where they cut their estimated reserves in half which temporarily tanked the stock. It's not necessarily a company specific phenomenon but calculating the reserve life of a well (or a region of wells like Bakken Shale) is an in exact science. Therefore, my biggest take away is to take note of management, their relationship with NOG and continue to watch the well depletion numbers reported after the first year of production. If indeed NOG has been more aggressive in their depletion accounting I am sure the market will eventually figure it out. It could pose a red flag for VOG. A bigger concern is if the smaller E&P players typically take such an aggressive approach to accounting for their well(s) depletion allowance over the larger more established E&P companies. I am no expert but these are unexpected land mines that generally come with such investments. Some oil is better than dry holes or water. Once you get by this, I guess you have to make sure oil depletion allowances are accounted for fairly. EKS