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Bakken Update: A Bronte Rebuff, Flotek Well Produces 24% More Oil Over First 11 Months

Bronte Capital did an excellent job of identifying incorrect well data by Flotek, but may have missed the mark as to how its well performed longer term.

The Flotek well produced 24% more oil and 36% natural gas when compared to the average of the other three over an 11-month period.

When doing well comparisons, it is very important to report on a per-foot basis. Lateral lengths always differ, and this better represents well performance.

On Monday, Flotek (NYSE:FTK) shares got crushed to the tune of 20% on a blog post by John Hempton of Bronte Capital. The stock continued lower, dropping to almost $8 from the $18 level traded last week. This post caused quite a stir, as it directly contradicts Flotek well production data on wells using its "Green" frac fluids. Flotek insists its technologies have shown a consistent improvement in production when compared to wells in close proximity using other fluids. We have seen this in several presentations. Bronte has pulled the production data from Texas, and directly refutes Flotek's numbers. It has gone as far to say that Flotek's data "looks like it was made up or at least systemically rigged." This is a big deal, as the company has other revenue streams, but the business lives and dies with patented Complex nano-Fluid® technologies. Several law firms have announced investigations. Bronte Capital is a respected firm, and although we didn't own any Flotek shares when this was announced, we decided to crunch the numbers and check the validity of its claims.

(Source: Yahoo Finance)

Those who have experience in state production data know these are not always the best venues to navigate. Some states provide little to no information, while others are very concise, like the NDIC. Being from North Dakota, I may be a little biased, but there are few that will argue it has one of the best sites in the country. Difficulties in pulling data are significant, as finding specific wells can be difficult, but another issue is how production is reported.

Flotek's production data is pulled from several state and public sources and provided through its FracMax app. In a recent Flotek presentation, which can be found in the Bronte blog post, four wells were highlighted. The four wells from that presentation are:

(Source: Bronte Capital)

Molnoskey 1H uses Flotek's patented CnF technology, and the other three do not. All are very close in proximity, which is important in comparing results with like geology. It's not perfect, as we have a Devon Energy Corp. (NYSE:DVN) well in the mix, which can skew results some.

There is no doubt, Flotek made a large error here. It decreased the production of the non-CnF wells, while leaving the production on its well. It is possible this was deliberate, but there is a chance this was an unintentional error. Those who navigate the Texas site know it is a difficult site to decipher. Production is reported by unit and not location. This makes it very difficult to log specific well production. This is generally estimated by well start dates after several wells begin to produce. It creates great difficulty in following any unit with more than one well producing.

(click to enlarge)


The above map includes all four locations. Molnoskey is in the center. Targac is located to the northeast. Almost straight north, to...