Energy Valuation Insights

A weekly update on issues important to the Energy industry


How to Value an Oil and Gas Refinery

A thorough understanding of the role of refineries in the oil and gas industry is important in establishing a credible value for a business operating in the refining space. In addition, it is critical to understand the subject company’s position in the market, its operations, and its financial condition. In this post, we walk through industry factors, three valuation approaches, and the importance of synthesizing these factors in order glean a holistic understanding of a company’s value.

Risk and Return: Working Interests and Royalty Interests

When valuing mineral interests, it is important to consider the nuances of the each type of mineral interest. Given that risk and asset values are indirectly related, it is important to keep in mind the various risk factors which pertain to the mineral interest. We’ll begin by examining the various risks surrounding both types of interests.

3 Types of Mineral Interests

Overriding royalty interests are often used as an incentive for those who are affiliated with the drilling process but do not own the minerals or E&P company (a broker or geologist for, example). Owners of ORRI, like royalty interest owners, bear no cost of production but own a portion of the revenues generated by the drilling process.

How to Use an EV/Production Multiple

Oil and gas analysts use many different metrics to explain and compare the value of an oil and gas company, specifically an exploration and production (E&P) company. The most popular metrics (at least according to our eyeballs) include (1) EV/Production; (2) EV/Reserves; (3) EV/Acreage; and (4) EV/EBITDA(X). Enterprise Value (EV) may also be termed Market Value of Invested Capital (MVIC) and is calculated by the market capitalization of a public company plus debt on the balance sheet less cash on the balance sheet. In this post, we will dive into one of these four metrics, the EV/Production metric, and explore the most popular uses of it.

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