In this post, we consider both the human and industry impact of Hurricane Harvey.
A weekly update on issues important to the oil and gas industry
In this post, we consider both the human and industry impact of Hurricane Harvey.
Last week, we analyzed the SEC’s $6.2 million settlement with a Big 4 audit firm relating to auditing failures associated with Miller Energy Resources, an oil and gas company with activities in the Appalachian region of Tennessee and in Alaska. The SEC order determines that the Big 4 audit firm did not properly use the reserve reports conclusion of PV-10 (present value at 10%). This post considers the proper use of reserve reports and risk adjustment factors when determining fair market value.
Originally published on Mercer Capital’s Financial Reporting Blog, Lucas Parris analyzed the SEC’s $6.2 million settlement with a Big 4 audit firm relating to auditing failures associated with Miller Energy Resources, an oil and gas company with activities in the Appalachian region of Tennessee and in Alaska.
Mercer Capital attended the Summer NAPE Expo in Houston this month. We discuss highlights of the expo in this week’s blog post.
One of the primary challenges for industry participants when valuing and pricing oil and gas reserves is addressing proven undeveloped reserves (PUDs) and unproven reserves. While the market approach can sometimes be used to understand the value of PUDs and unproven reserves, every transaction is unique. Additionally, many transactions that we see today are still a result of the crash in oil prices in 2014; and in some sales of non-core assets, PUDs and unproven reserves have been deemed worthless. Why then, and under what circumstances, might the PUDs and unproven reserves have significant value?
The movement in the future spread away from a contango environment and toward backwardation is positive from a supply and demand perspective. Expectations are a backwardation environment will move crude oil prices higher. However, the exact cause of this change is unknown. While this shift is good news for the industry, company specific risk and investor’s fickle attitudes create volatile equity markets.
There are many reasons that you may want to sell your oil and gas royalty interest, but a lack of knowledge regarding the worth of your royalty interest could be very costly. Whether an inflow of cash would help you make ends meet or finance a large purchase; you no longer want to deal with the administrative paperwork or accounting cost of reconciling monthly revenue payments; or you would prefer to diversify your portfolio or move your investments to a less volatile industry, understanding how royalty interests are valued will ensure that you maximize the value.
Travis W. Harms, senior vice president of Mercer Capital, wrote a series of whitepapers that focused on demystifying corporate finance for board members and shareholders. In this whitepaper, he has distilled the fundamental principles of corporate finance into an accessible and non-technical primer. Structured around the three key decisions of capital structure, capital budgeting, and dividend policy, this whitepaper is designed to assist directors and shareholders without a finance background to make relevant and meaningful contributions to the most consequential financial decisions all companies must make. Mercer Capital’s goal with this whitepaper is to give directors and shareholders a vocabulary and conceptual framework for thinking about strategic corporate finance decisions, allowing them to bring their perspectives and expertise to the discussion.
You don’t need an expert to tell you that the oil and gas industry has significantly changed over the past three years. Simply looking at crude oil and natural gas prices from 2014 versus today can confirm this. However, understanding how the change in oil prices has affected the value of your oil and gas business is a little more difficult.
In case you missed it, this week are rerunning a consistently popular post.
Oil and gas assets represent the majority of value of an E&P company. The Oil and Gas Financial Journal describes reserves as “a measurable value of a company’s worth and a basic measure of its life span.” Thus, understanding the fair market value of a company’s PDP, PDNP, and PUDs is key to understanding the fair market value of the Company.
