Strictly: Drilling and oil-field services Message Board

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Gold/Mining/Energy : Strictly: Drilling and oil-field services

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To: The Ox who wrote (70742)	8/11/2000 8:01:32 AM
From: Taylor Mill	Read Replies (1) of 95453

PRZ and SEC Value RE: "Please look at the $24/share reserve value assumption I made. This is based on the total value before the cost of extraction from the ground. Is it fair to say that at least half of the "value" will be lost in cost of revenues (SGA, production costs, etc.)? " NO, that is not a valid assumption. SEC valuation is a discounted valuation method based on assumptions regarding cash inflows and outflows based on current prices. The PV10 value is the SEC value. Therefore assumptions about operating costs are already there. The "gotcha" in SEC pricing is that you need to understand the prices used and whether they are meaningful over the long term. Many would say that an SEC value based on Q2 2000 prices are too high unless you really believe oil and gas will maintain equivalent highs over the extended long term. Most would not make that bet based on history. Also it is not clear here whether PRZ is indicating a pretax or after tax SEC value. Many companies sell at market prices approx 1x to 1.1x pre-tax PV10 or 1.5x after tax PV10. If it is a pre-tax value then PRZ would appear to be at a high but reasonably valid valuation.

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