Evaluation of Oil & Gas Stocks
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Posted: Thursday Oct 9 11:32:43AM 2003
Some very good comments and suggestions from Garrett. Thanks.
In terms of the oil and gas comparison charts. The reserve life index was determined by the latest reserve report (generally Dec 31/2002) divided by quarterly (or six month - depending on which chart) total production (avg prod multiplied by number of producing days). This number tends to be somewhat skewed toward the end of any given year as reserves have not been updated for one year. Those companies that have had very active drilling programs should add considerable reserves during the year which will contribute to a longer RLI.
I generally look for an RLI of 7 years plus but will go lower if the cash flow multiple is attractive.
Posted: Friday Aug 22 1:30:58PM 2003
Field netbacks can be implied to predict future cash flow but like everything else they should not be used exclusively. Field netbacks are a variable indicator as they move exponentially with commodity prices.
Field netbacks are determined by taking production revenue less royalties less operating expenses divided by production during the period. In these times of high commodity prices, field netbacks should exceed $20 per boe and many companies are showing field netbacks as high as $30 per boe.
Posted: Tuesday Aug 19 9:39:42PM 2003
1. Price to Cash Flow ratio-- for example BIS.A has a price of $2.17 and 2003 cash flow should come in at $0.90 or better---ratio of about 2.4 to 1 or better. Anything under 2.5 is excellent.
2. Net Asset Value -same stock--$2.75 as of March 31st.
3. Record of sucessful drilling. BIS.A has been doubling its cash flow on a yearly basis --probably will not do quite so well now it is getting a little larger.