Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: E_K_S who wrote (39090)	9/3/2010 2:51:35 PM
From: Dale Baker	Respond to of 78464

One analyst report I have with a $6 NAV for MHR is using about $9 boe (proved only) for their NAV calculation. Using your numbers, the NAV would be considerably higher. Nice margin of safety in my mind.

To: E_K_S who wrote (39090)	9/3/2010 3:19:06 PM
From: Paul Senior	Respond to of 78464

Busy here w/trades. I'll have to get back to you later. We may be using different metrics. I am talking barrels of OIL in the ground. NOT boe -- which is barrels of oil equivalent. Boe can be a combo of gas, oil, and 'natural gas liquids'.

To: E_K_S who wrote (39090)	9/3/2010 5:46:27 PM
From: Paul Senior	1 Recommendation Read Replies (2) \| Respond to of 78464

EKS, Yes, might be more accurate to use a factor times the crude oil spot price. That might result in streaming - instantaneous - navs that capture variation in oil prices. Wouldn't be appropriate in every case though because some e&p's that produce oil have that oil hedged at fixed prices. That might have to be considered. Taken together, too much work for me with this for the gain in accuracy. Perhaps would also be too much nav fluctuation for my ole mind to stand. I view enterprise value as what an acquirer would pay for the business after all claimants to the business are satisfied. You buy the business at its current market cap and you have the company's debt to contend with, so add that to the market cap (ltd at market value, if known-- or I just use balance sheet amount). Otoh, you get to keep any cash if you bought the company, so subtract that out. You theoretically have got to also pay off the preferred shareholders, so also add that amount in (at market value if available). I generally stop here. There are possibly some off-balance sheet items that I don't see and -- rightly or wrongly --I don't dig for. Also option holders have a claim on the business, but I don't know how to factor that into enterprise value, so I ignore that. I assume when I divide my resulting enterprise value by fully-diluted shares (which includes the effect of options if they were converted) it covers it well-enough. ============================ I don't know why Mr. Wulff has a column that's headed by EV/market cap. I never pay attention to that particular column. I guess since debt is generally the largest component of EV after market cap, that the higher the ev/mkk cap ratio, the greater the debt the company has to deal with. Which is more important for smaller e&p companies because a lot of them have the land leases, but not enough cash or so much debt, that they can't build production (unless they produce slowly to reinvest cash flows or unless they dilute stockholders by issuing shares). ================ Again, my operating style is that I want something quick, easy, and consistent to both screen for stocks and to make buy/hold decisions. I'm not a fan of dcf partly because of the assumptions one makes of future years' performance. (I will consider 2pnav10 though if the company does the work in getting and reporting it.) Also as I've said earlier, I'm primarily interested in oil. Less interested in nat gas, of which I believe there is either an ample supply or a future glut that will force gas e&p managers to reduce their unhedged production. So I attempt to base valuations on oil component only, and try to avoid using boe (if it includes gas for the particular company) as a variable in my calculations of value. I'm hoping my sloppy analyses are good enough. I expect I'll have some clunkers that I could've perhaps avoided, but since I'm buying a package of these e&p's -- I'm up over a dozen now -- I hope I'll have some good winners, and that they'll in total, do better than my losers lose. The longer I'm in, the more I hope to learn and observe, and so with this sector I'm intending to average up on stocks that look like winners to me. Certainly if you have some calculations or techniques that you prefer that seem better than what I'm doing, I wouldn't doubt it at all. Please post results of your work, and stocks you like. I've got no problem following you guys into positions you like that might show up to be much better buys and/or safer bets than what I get from my simple number crunching.