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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: Dennis Roth who wrote (140360)	9/22/2010 1:55:06 PM
From: Paul Senior	Respond to of 206085

Dennis Roth. I couldn't understand why that post got recommendations either, just based on the article. Maybe it's because ROSE or SFY were mentioned favorably. The article headlines "Small and Mid Cap Oil & Gas Exploration & Production Reduce NAVs On Lower Commodity Prices" "We (edit: That's Credit Suisse) reduce our NAV-derived targets for the bulk of our small cap E&P group on a lower commodity price outlook. We are reducing our NAV- derived price targets for our small-cap E&P group by a median of 5%, reflecting lower near and intermediate term commodity price outlook." Now I'm a person who's trying to invest in this sector based on nav, so when I sees downgrades to nav, I immediately say, uh-oh, that means downgrade to company values and thus lower prices for the stocks. (Assuming nav and stock prices are correlated) After considering what this article seems to imply --- bad things for stock prices because nav's are going down, I come to the opposite conclusion. Reported navs are going to go up based on this article, and I can breath a sigh of relief. The key is in the first few words, "'We' reduce 'our' NAV". Because there is no standard, agreed-upon way to calculate nav, anybody can report nav any way they want. Credit Suisse guys being analysts for a brokerage firm, apparently adjust their nav numbers every time they make a change to oil price outlook. So they estimate oil prices now as: 2010: $75.50 2011: $72.50 2012: $80. This is a lowering from previous estimates. Why? Not stated. Why the drop in '11 followed by a 10% rise in '12? Not stated. Anyway, because of this they merely change their spreadsheet numbers and nav comes out less. Credit Suisse number-crunching seems irrelevant. I base my valuations on what the e&p companies report. Methods which vary from company to company. However, there are some generally-used methods. Commonly-used, but not by all. One is to calculate nav based on year-end oil prices, or at prices at time of independent valuation of reserves. Some companies report using SEC pricing (average oil price over 12 months, if I understand right). Secondly, many (most?) e&p companies do not continuously recalculate nav. So if somebody were to look at the nav as reported by e&p companies at the recent Enercom conference, they would see some companies using nav based on 2009 energy prices. I believe, for example, I saw one there based on $69.50 per barrel. Which means to me, IF Credit Suisse is correct about energy prices in '10 and/or '11 and/or '12 (and I don't know why Credit Suisse would be correct), that when these e&p companies report THEIR new nav estimates, they will be reporting based on higher oil prices than they last reported, and their nav's "should" be up substantially. This would be generally true throughout the e&p sector. So it would make bullish reading. So whereas I first flashed "bummer, nav's are going down", when I began reading the Credit Suisse report, after reflecting, it really is more "Hey, the nav's the companies are going to report might all be up. Yes!" Again, CS can certainly report nav's any way they want, but to me the article was very misleading.