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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (38973)	8/26/2010 10:19:37 AM
From: Spekulatius	Read Replies (1) \| Respond to of 78470

Hello Paul, my thesis is that flowing production is irrelevant. If we talk about a situation where a company invests it's entire cash flow and does not pay any dividends (if one of both would occur an adjustment to the reserve base would be made of an agreed upon value of the reserves) then it does not matter if a company just sits on reserves and does nothing or another company lifts 10% of their reserves and invests the cash flow but achieves nothing else but replacing production. Both would end up with the same reserve base after a year except that in the first case, the company does essentially nothing, while in the second case they have been keeping the rig owners happy but added no economic value for their shareholders. In other words, only the owners earnings count and they would be zero in both cases. The model has some weakness in the sense that not all reserves are created equal, but I feel it's better than relying on the income statements to see where the value is or value is created.