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

To: E_K_S who wrote (39088)	9/3/2010 12:37:53 PM
From: Paul Senior	Read Replies (2) \| Respond to of 78464

Yeah, I agree as regards that $15.00 number. I checked last night, and from what I can pull up from Google, I found people who do use $15.00 per barrel of oil in the ground. Both for proved and probable apparently. However, previously I've also found people who use $20 per barrel. And that's what I have been using. Anybody can value reserves any way they want and post the value they get and compare it to the stock's price or EV. My observation is that there's a lot of assumptions that are made or conservative numbering that's going on. So different people will get different results. In other words, Spekulatius or anyone else can post their numbers on an e&p and say the stock is or is not undervalued. That's only their opinion. And with oil in the ground, it depends heavily on assumptions used. I'll use my assumptions and make my calculations, and I may come up with a different conclusion. For me, I am doing what I see other people doing - those pundits who write and apparently who imply they have some expertise. There's a variety of opinion out there. Most times I want to be conservative, and this is what I see some pundits doing, so I follow (sometimes) and use this: 1. Use enterprise value, not market capitalization 2. Use shares fully diluted, not outstanding. (And it makes a difference since there are so many options issued by the small e&p's.) And there are other variables too, e.g. I use proved and probable, whereas the most conservative approach would be to use proved only. (And the least would be to use proved, probable and possible)

To: E_K_S who wrote (39088)	9/3/2010 11:01:58 PM
From: Spekulatius	Respond to of 78464

E_K_S - the 15$/BOE crude is my conservative estimate based on a few observations. You really can use any number you like. You are correct that the real value floats with the crude or NG prices but for relative comparisons and quick estimates the 1.5/15$ estimate should work just fine. As for PWE and looking at the link you provided - the 26$ netback # contains 5.3$ in hedging gains. i regard these as one offs (PWE had had hedging losses before) so that leaves 21$, which is apparently a pret-tax value. So 15$/BOE crude as a discounted value looks actually sort of high in case of PWE.it appears to me that PWE lifts quite a nbit of heavy crude that seems to sell at a discount to light sweet crude. That is the reason why the netback number for PWE seems to be lower than some of the competitors, This makes PWE even more overvalued (based on proved resources only) than some peers. FWIW, probable reserves (which some smaller E&P almost seem to regard as good as proved, are by definition reserves with a 50% chance of getting to production Laos called P50), so this means that they can at most be worth 50% of what proved reserves are worth. it's almost certainly less because to convert probable reserves into proved one, the development cost for doing that needs to be subtracted from NPV. I'd say that probable reserves should at most valued at 1/3 the value of proved reserves -5$/BOE or 0.5$/MCFE. en.wikipedia.org