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Gold/Mining/Energy : American International Petroleum Corp
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To: qdog who wrote (526)7/21/1997 10:45:00 PM
From: Taylor Mill   of 11888
 
Faris and Qdog:

>>Also, Kenny, what is the value of oil in the ground if its not $17/barrel? Any ballpark figure?<<

Representative values for "oil in the ground" can be estimated in various ways. Below are two approaches for you to consider.

One is based on values paid or implied by M&A transactions. For example, the 5 year average value of "foreign" reserves purchased during the period 91-95 was $3.23 per barrel. The 3 yr avg for 93-95 was $2.88. This was from the widely quoted Arthur Andersen survey.

Alternatively, the particulars of indivdual company situations can be assessed with cash flow models. And then the net pre-tax or post-tax profits can be discounted and divided by reserves estimates. One example of an estimated value per barrel of Triton's Colombian reserves is about $7/barrel. These are reserves in production and currently gnerating cash flow. Not hypothetical reserves and not years away. The typical Colombian well of Triton costs about $14 million to complete but has reserves of about 11 MMBOE associated with it.
Most commonly you will see $4 - $5 per barrel used for assessing potential reserves in places where the hypothetical future production is readily marketable. But AIPN with 0 developed reserves and no likelihood of producing and selling any oil for years will likely have a NPV of barrel of oil of $3 or perhaps less.

It should be clear to anyone that valuing these "potential" reserves at $17 per barrel is wrong, wrong , wrong.

Any value over $3 is inconceivable to me to use in a conservative valuation case. But use $4 or $5 if it makes you feel better.
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