I’m totally new to oil investing and was looking to understand how revenue is calculated. I’ve been looking at auctions on EnergyNet.com and one lot (105619) shows Revenue from 5 wells of
May 2023- $1,983.18
April 2023-$2,571.10
March 2023-$4,170.09
February 2023-$4,040.26
The website states: “Currently these Wells produce an average of 4,851 BOPD and 21,254 MCFPD” and have a residual interest of 0.00018491. Also “Seller is conveying one-fortieth (1/40th) of its right, title and interest. The check stubs provided herein reflect the full interest owned by Seller. The cash flow table above reflects the actual interest being conveyed.”
but when I multiply the production by the price of oil and by the Residual interest and the interest i don’t get anywhere near the revenue numbers reported above.
I would greatly appreciate it if someone could please explain the math to me!
PD is per day, multiply price times number of days on production each month.
You can see already how quickly these wells fall off; and, they have collected the flush production and now want to bring forward the royalty stream. I wouldn’t go more than 3-4 years worth on about 1000/month. Especially since they want 40 different people to bid each other up. Not trying to sound opinionated, but just a few words since you said you’re new.
Every one of those has the projected cash flow of a Ponzi scheme. If you buy them for 30-40x cash flow as reported…you get 30% of your money the first year. Then 20% year 2. Then 12% year 3. Then so on and so on, until it adds up to 90% of your money.
They chop them up small enough that it works out for them. Nothing illegal or anything, just sales. They just have a great looking yield but never really amount to much. But the fair price is often 18-20x or something monthly cash flow. And they don’t go for the fair price. All it takes is one.
Look at the effective date. (Always beyond what has been paid). Look at the last shown production volumes. Take the last of those volumes, and for new-ish wells, multiply by .875 for each month between the effective date and the last date in the “revenue”. E.g. If they show March production/revenue, but effective date is July 1 then take the March production #s and multiply by .875^4. That is your expected production volume in July. So that combined with a price guess is your month 1 revenue. 59% of the March # on volumes. Which is gonna be way less than the January number. And way less than the “average” they quote which is something like Dec-March.
EnergyNet is fun. But I wouldn’t look at it as a great place to invest for fully developed minerals. Its competitive, and like everything, you don’t really want to sit down at the table with a pile of money and then start wondering if a straight beats a flush.
You might find this article helpful to visualize the decline curves of the wells. Conventional wells lean toward exponential decline and tight horizontal wells lean toward hyperbolic decline. The volumes of wells are constantly decreasing unless there is a mechanical intervention or the choke changes in the valves at the surface. The royalties are a function of the volume of product produces times the price of the product.
( I have nothing to do with this company. This is simply a fairly easy explanation for the layman.)