Lundin Oil (LOILY, LOILB Sweden) Message Board

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Gold/Mining/Energy : Lundin Oil (LOILY, LOILB Sweden)

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To: Timelord who wrote (284)	9/7/1997 7:57:00 AM
From: Razorbak	of 2742

Alex: I'm not really sure which valuation techniques you're referring to, so I'll address a couple: (1) Reserve classifications... There are several different reserve classifications: proven, probable, possible, and potential, and each has a different probability of occurrence... proven = 90%+ certainty, probable = 50%+ certainty, possible = 10%+ certainty, and potential = less than 10% certainty. For a rough "rule of thumb" valuation of a company's reserves, you can use these probabilities along with a reasonable value for reserves in the ground (say, $3-5/bbl) to get a "risked" (i.e., probabilistic weighted-average) value of the company's total reserve base. (2) Cash flow... E&P stocks typically trade at 5-9X cash flow from operations (before changes in net working capital). See my posts on the GEOI thread about three weeks ago for a recent example that I walked through on this topic. (3) Net asset value (NAV)... See my posts on the CHK thread right after the recent price crash for documentation on the techniques used by John S. Herold consultants for this type of valuation. Hope this helps. Razor

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