Walter,
I just reviewed your message and will attempt to get back to you with some answers. I've got to run. When talking to Canadian companies, I always touch upon net asset value. Companies will estimate these numbers, but it is the valuation of outside firms which really count. It is a good idea to know what firm evaluates the reserves for some are tough and some are very gracious. Oil & Gas companies have this done once a year and usually will print the information in their annual report. Key in on the portions involving RESERVES and UNDEVELOPED ACREAGE. All factors, some of which you mention, are taken into consideration. In most cases, reserves are discounted @ 15%. If a company uses another percentage, you must arrive at a comparable number to review against peers. The life of reserves are critical and I consider extent of undeveloped acreage an important element. I invested in Upton Resources @ $1.35 when they were involved only with exploitation and developement of their acreage. Their production growth record was good but reserve life was only 4 years. They had a sizable amount of undeveloped acreage and budgeted quite a little for 1995 to commence exploration activities, the reason for investment. Their prospects were good and had paid for seismic surveys of the land. If they had any success in their exploration program, it would have a big impact on their reserves and value of shares. As it turned out, they were successful and shares are now more than 4X my investment.
I love junior oil companies that have lands with exploration targets which will take 1-1/2 to 2 years to drill. Developement drilling and number of producing wells after successes become a staggering number and reflect such in production numbers.
First evaluation to consider is a company's objectives. In most cases, small companies don't enter into the exploration phase until they get production at 1,000boe/d. Growth through exploitation and developement of wells usually is a prelude.
Your question is a very good one. You might also want to go to capp.ca , and ask the same question. This is a Canadian web location consisting of companies comprising 95% of Canada's production. I believe they will help you, or at least put you in touch with someone who can. Another educational move would be to bring this question up with people you talk with at companies you may call. Usually CEO's of small companies will give an opinion to help you out. Forget Investor Relations personnel.
To conclude, you might want to factor net asset value performed by an outside firm and listed in the annual report as a starting point. Then, find out what is budgeted over the next twelve months and find out how it is broken down. In the drilling portion, ask what impact it would have on reserves in terms of both size and life. All companies will budget for the coming year of operations based upon cash flow to be realized in that year. Based upon their operational knowledge, they are able to project year ending cash flow. This is a number to monitor and watch. Usually any success with the exploration drill bit is not factored and is a big plus. That was the case with Upton Resources I mentioned earlier. I meant this to be short but one thing led to another. Hope I've been of some help.
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