Oil stocks. I've moved my focus to EF/NPV. Still look at at book value, but not finding new candidates where price to stated bv is less than one.
I'm having to dig a little deeper to find npv. And just as was stated by Spekulatius that there are some issues with McDep calculations, I find many concerns/questions also with individual company calculations as I search through their reports. Many, not all, e&p companies report 2pnpv-10 (the metric I'm looking for) based on the various "p's" -- proved/producing, proved/not producing, probable; they exclude or sometimes include other assets; they do or don't report overall company number or do or don't report each geographic area or by well itself; they do or don't record the npv of the well before or after royalty and/or before or after working interest and/or before or after taxes. Also, there's the bboe split between gas,condensate, oil and how each is to be valued (end of year prices, average price during the year). Not often are all these conditions specified clearly, or are they clear to me how to interpret them.
So at best npv-10 is a guideline. Still I use it for a baseline in making purchases. Small purchases of several companies by which I attempt to control risk through diversification -- acquiring a basket of companies that trade below 2pnpv-10.
Fwiw:
I'm adding to my few EPM shares today (Stock closed @$5.79.) In their April presentation (p.8) they said they have "1P+2P reserves (7/1/09) PV10 of $245M, or $7.75 per fully diluted share". And "84%" of those reserves are oil. Furthermore, as they reiterated in the SeekingAlpha's transcript (Evolution Petroleum Corporation F3Q10 (Qtr End 03/31/10) Earnings Call Transcript) of their earnings call, that npv is expected to grow:
"One of the things that I think people can easily miss is that our PV 10 actually increases until peaking at about 2015 before it rolls over. We have a depleteable reserve but what’s going on here is that the 10% discount rates are being knocked off as the years go by, are over powering the more minimal depletion of the reserve. Kind of the exciting thing for is as time passes that PV 10 inclines without anything else happening. At the same time, we’re getting cash flow off of Delhi that we can reinvest in some of our other projects to continue to build shareholder value through that means as well. It’s kind of a double accelerator affect that we’ve got in our favor here for a while"
Npv can grow or shrink of course depending on how oil and gas prices rise or fall. Oil seems more expensive now than when the company's independent service calculated 2pnpv last year, so the reported npv is likely to be somewhat understated now.
Anyway, there's a small margin of safety here -- maybe -- and I'm an acquirer and holder of a few shares. ATPG remains the company I follow with the largest discount to npv and my largest holding by far in this venue. ATPG, being a Gulf of Mexico deepwater driller just expanding it production, has its issues though. |
