Creative Bookkeeping -- DUCs -- August 24, 2016

Watch it again:

Telstar, The Tornados

Updates

August 25, 2016: this is another perspective regarding CLR from a contributor over at SeekingAlpha who is shorting CLR. Among many reasons he cites for shorting the stock is this one:

The U.S. has agreed, along with Canada and Mexico, to generate half of its electricity from renewable sources by 2025.  

It is incredibly important to note that this "renewable" energy includes hydroelectric power and nuclear power.

September 6, 2016: on August 25, 2016, CLR was trading for $48.83. Today, CLR is trading for $50.41. CRL did get down to $47.72 on September 1, 2016, but when one bases his "short" on policies mandating electricity from renewable sources by 2025, one assumes he is shorting CLR for the long term. We will continue to monitor. The screen name for the SA contributor is "Esekla" who describes himself as a contrarian with an interest in tech, but nothing about oil. Again, this is the original link. 

Original Post

 

I love "the business of business."

CLR is, I think, doing something interesting. Obviously all the operators are doing this but CLR puts it right there out in front of you. Some may think it's creative financing. I think its simply "creative."

I'm looking at this from the viewpoint of the shareholders (including the directors of the companies).

This has to do with DUCs.

Regardless of how the company is doing -- good, bad, or indifferent -- a company with DUCs has already sunk money into those wells. If those wells were drilled a few months ago, they are history. The capital required to drill those wells was factored into an earlier financial quarter.

So, those DUCs are simply sitting there. What it cost to drill those wells is now history, part of a previous quarter, and perhaps part of an earlier fiscal year.

So, CLR starts "from scratch." Instead of suggesting these wells cost $6.2 million, CLR simply states that these wells have an "incremental" cost of $3.6 million (or whatever it costs to frack/complete the well).

It's not quite "accurate," but with creative financing, one can almost say CLR is going to "bring in" scores of Bakken wells with EURs of 900,000 boe (mostly oil) for about $3 million / well.

That may be why CLR is up more than 160% in the past year, or whatever it is.

Note: this is not an investment site. Do not make any investment, financial, travel, job, or relationship decisions based on what you read here. If this is important to you go to the source.

By the way, healthcare insurers do the same thing. If they get a bill in March of any given year, it behooves them to simply "deny it" and request the hospital, physician, or "patient" resubmit. By the time the claim is resubmitted, the healthcare insurer has managed to move the claim, or the expense, into the next quarter. Sure, it all eventually catches up with them, but when earnings are reported on a quarterly basis, anything that can be done to push expenses into the next quarter seems like something a company might want to do. In some cases, the healthcare insurer comes out even better than expected: some claims may not be resubmitted.