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

To: Mattyice who wrote (39059)	9/2/2010 12:16:31 AM
From: Jurgis Bekepuris	Respond to of 78670

Personally, I buy E&Ps based on earnings. I know, I know this is the wrong way to value them - that's what everybody says on this thread. :) Earnings probably can be fudged even more than reserves. I can be stubborn though. :) Positions in BSIC (here's your OK earnings / not great reserves value trap), CLLZF (great reserves, crap earnings, crap balance sheet value trap), COPJF (good earnings and reserves value trap, well maybe bad drilling results value trap ;)), DRAGF (nobody cares about some-former-sovietistan value trap), E (not really E&P value trap), GEOI (too much gas value trap), GPOR (too big cap gains, don't wanna sell value trap), GTE (huge growth, pretty high valuation trap), IACAF (huge dilution trap), NXY (just generic Canadian trap), PBEGF (THAI trap), STPJF (another Canadian junior who may report sometime in the future trap). Not counting oil service traps that are another story. :) Pick your poison. ;) I mean "pick your oil". ;)

To: Mattyice who wrote (39059)	9/2/2010 2:03:05 AM
From: Spekulatius	Respond to of 78670

Matt, you input is much appreciated. I would take NPV calculations with a bunch of Aspirin and some hard Licor <g>. I think they are mostly overstated and do not take into account the large costs to develop the reserves or the cost to keep the enterprise running. Just one example- MHR spends 80% of their revenue on G&A expenses - how can this be? Worse, even though their revenue have more than trippled YOY, G&A expenses have grown even more so. You would expect this number to come down a lot percentagewise? Are these really G&A expenses or covered up more or less direct production expenses, knowing that investors look high production costs more unfavorable than high G&A costs? I am not in the oil industry but I know that many managers do shuffle their costs around to make them look better. I have also seen ridiculous NPV assumptions for new product/platform introductions, which i think is quite similar to having NPV calculations done on an oil or gas field that has not produced yet. I do think that proved reserves audited and verified by a reputable firm are worth something, after all misstating this in the 10k is accounting fraud and could lead to jail time.