Small e&p's. I don't know what the appropriate valuation methodologies are. I know what I'm using, but as people here have commented about them or their own methods, I'm less sure I'm correct.
I'll have to look closer at my notes to see if I've got any links to forward to you. I've quickly scanned Google again now, and I don't see anything I like regarding valuation methods. This link seems current and somewhat helpful:
marketoracle.co.uk
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I am using three methods:
1. Enterprise value to nav. Enterprise value definitions vary. Nav even more so. I use proved and probable reserves. As I infer from others here, proved-only should be safer, more accurate, and maybe all-around better.
2. Enterprise value to value of flowing production. I like oil. I don't like or much use gas equivalent production.
3. Land value. Estimate of net acreage owned in high po oil shale fields. Using values based on recent sales of adjacent or similar fields. (I am buying some small e&p companies solely because they have land in some very high potential oil shale areas (e.g. Bakken).)
I'll point out my modus operandi and contrast that with what appears some others are doing, and this may be helpful and cautionary for you. If I find stocks in a sector that's downtrodden and seems opportune now, I like to buy a package of stocks in that sector. Sometimes a large package. Consisting of SMALL positions in a large number of holdings. Depending on how judgmental you are, this ultimately may be viewed as doing inadequate dd or surface dd or sloppy dd. Perhaps also not considering valuation methods more carefully or stringently. Also, maybe a sub optimum way of operating-- essentially because I am looking for ways to include companies in the sector for my portfolio, whereas others might study the sector and the stocks within the sector and look at their values closely and intensely so as to cull the list and select only those stocks or that particular stock which seems to have the "best" chance for success and/or the least chance of losing. This all boils down to if there are people here like Spekulatius who do seem to study carefully both the broad and narrow aspects of the companies and their businesses, these folks are likely to have, if not a better way to value these companies than I do, perhaps at least a safer and maybe more logical one as well.
As regards the e&p sector, my belief is it won't matter. If oil holds, and frac drilling continues, for me, I'll have losers, but if I'm somewhat careful with position size, my winners will carry my losers, and I'll wind up okay. Not as well as others maybe, but okay for me.
GL, and let us know what you find that we can use for our learning too, and what e&p stocks you ultimately choose for purchase. |
