Energy Prospectus

Dan ..... At the end of your comments on Range Resources in latest "View" you state that your are expecting all of the Sweet 16 to report increased proven reserves when release 4th qtr results and ... "This will lower their DD&A expense in 2017 and increase reported earnings". Is this because they are all on FCP accounting?

All of the upstream companies use the "Units of Production" method to calculate their Depreciation, Depletion & Amortization ("DD&A") expense. Go look at a few of the forecast models for the Sweet 16 and you will see that DD&A is the largest expense of most upstream companies. DD&A is considered a "non-cash expense" because it is a recovery of prior period capitalized expenses, therefore it is backed out for calculation of Cash Flow From Operations for the current period.

DD&A Expense = (Book Value of Producing Properties + Future Development Expense) X Current Production/Proven Reserves

Upstream companies have two approved accounting methods to choose from "Full-Cost" or "Successful Efforts". Most of them use Full Cost. It is important that you know the difference when comparing companies' earnings per share to one another. I use cash flow from operations to value a company, so it really does not matter to me

Proven Reserves as of 12/31/2016 should go up because of year-end revisions. 3rd Party reserve engineering firms should give all of the Sweet 16 companies increased proven reserves because of improving well performance and additional PUD locations. Plus, more density and stacked laterals should increase proven reserves per acre.

Plus, lower completed well costs should also lower DD&A expense in 2017.

As I posted here a few days ago, a lot of "SWAG" goes into the year-end reserve report. When commodity prices are trending higher, the SWAG is positive and can result in some nice upward reserve revisions.