How do you value oil reserves?
How do you value oil reserves?
For financial reporting purposes, the primary method for valuing reserves is the income approach via the discounted cash flow method, whereas unevaluated acreage is typically valued using the market approach via the comparable transaction method.
How are oil and gas companies valued?
The most common and widely accepted method to value an oil and gas company is a Net Asset Value Analysis, and nearly every valuation estimate for oil and gas assets will include a NAV analysis.
What are the three types of oil reserves?
There are 3 main reserve categories under the Society of Petroleum Engineers (SPE) definition: proved; probable and possible reserves.
How do you value oil and gas stocks?
Valuation Example Market cap over 50 billion. Virtually all its earnings come from Alberta oil sands. 50 years of reserves. Stock is trading at twice P/E ration as the rest of the group.
Is oil reserves an asset?
For oil and gas companies, oil reserves are considered a depleting asset, in that the more reserves they extract, the less product they will have available to sell in the future.
What is PUD in oil and gas?
The original definition of a PUD was not complicated: “Proved undeveloped oil and gas reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.
How is Dacf calculated?
Key Takeaways
- Debt-adjusted cash flow (DACF) is used to analyze companies in the oil and gas industry.
- Debt-adjusted cash flow is calculated as (DACF = cash flow from operations + financing costs (after tax))
What does EV CF mean?
Enterprise Value to Cash Flow from Operations (EV/CFO)
What are gas reserves?
Natural gas reserves refer to large deposits of natural gas which, based on geological surveys and engineering studies, are thought to exist to a very high degree of certainty. Natural gas reserves are spread worldwide, however, some countries have more natural gas than others.
How do oil reserves work?
Oil reserves denote the amount of crude oil that can be technically recovered at a cost that is financially feasible at the present price of oil. Hence reserves will change with the price, unlike oil resources, which include all oil that can be technically recovered at any price.
Is gas and oil an asset?
Long-lived assets consist of tangible assets and intangible assets. Tangible assets have physical characteristics that we can see and touch; they include plant assets such as buildings and furniture, and natural resources such as gas and oil.
Who owns oil and gas reserves?
If we simplistically look at proven oil reserves, the answer is obvious: mostly OPEC and Russia. According to BP, the global authority on the subject, this collective group of 16 countries owns 1.35 trillion barrels of proven oil reserves, or nearly 80 percent of the world’s total.
What are the different valuation approaches for oilfield services?
The oilfield services segment can also be considered a distinct segment, which serves the upstream oil and gas companies. Three standard valuation approaches — the Income Approach, the Market Approach and the Asset Approach — typically are applied in valuing companies in the oil and gas industry.
What are oil and gas reserves based on?
Oil and gas reserves can be based on pre-tax or after-tax cash flows. Pre-tax cash flows make reserve values more comparable as tax rates vary by location. When using pre-tax cash flows, we use a pre-tax cost of debt and pre-tax cost of equity to develop a WACC.
How to estimate the value of oil and gas assets?
When estimating the value of a company or a group of assets, both a Market Approach and an Income Approach should be employed, and this holds true when estimating the value of oil and gas assets.
Should oil and gas analysts use book value or P/E ratio?
However, as possible reserves have only a 10% chance of being produced it is not as common. Oil and gas analysts often use price compared to cash flow per share or P/CF as a multiple. Cash flow is simply harder to manipulate than book value and P/E ratio.
