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Gold/Mining/Energy : Canadian Oil & Gas Companies
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To: Richard Saunders who wrote (5109)6/1/1998 12:02:00 AM
From: mike smith  Read Replies (2) of 24921
 
Richard - To take the Net Asset Value discussion a little further
it would be nice if we could see a standardized approach to
NAV calculations presented by companies in the oil patch to
make comparisons between companies a lot easier. Some of
the problems I see when reviewing NAV calculations provided
in a company's investor information materials (ie. annual
reports, corporate brochures, etc.) are as follows:

- Some companies like to throw in values of assets that may not have been appraised independently such as undeveloped acreage, tax pools, seismic data acquired, etc.

- Various discount rates are used. It would be nice if company's could
always provide the same discount rates when referring to the Net Present Value of their oil and gas reserves (ie. 10% or 15%preferrably)

- When discussing the types of reserves included in valuations
provided it would be nice if Company's used the same definition
of proven plus "probables". The general practice is to risk the probable reserves by 50%. This yields what is widely known as
"risked probable reserves". For enhanced comparability each
company should provide reserve quantities and reserve values for
proved reserves only and then for proved plus risked probable
reserves.

At the end of the day, Companies will try and put forward the most
favourable NAV calculation possible. It is up to you and I (the
investor) to do the proper due diligence and crunch out our own
NAV. Since a Company's NAV is such a key parameter in valuing its stock price I think it is imperative for all of us to understand the areas in which company's can try and "inflate" this figure.

Lastly, make sure when looking at NAV 's that you evaluate it
on a Fully Diluted per share basis as well as a Basic per share
Basis

Mike
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