Oil and Gas: Accounting Financial Statement Analysis and Trading Multiples (1 day)

Industry Overview Learning Outcomes

• Oil and gas production and consumption growth and profile
• Global reserves
• Key players: NOCs, IOCs, independents and oil field service companies
• Value chain of one barrel of crude oil (E&P, refining, retail distribution & taxes)
• Stages in the upstream: exploration, appraisal, development, production and abandonment
• Volumes and conversion factors
• Price benchmarks (Brent vs. WTI)

Accounting and Financial Statement Analysis Learning Outcomes

• Reserves and resources definitions (proven developed & undeveloped, probable & possible, contingent resources and prospective resources)
• Exploration and evaluation: Full costs vs. successful efforts accounting methods
• Development expenditures
• Depreciation, depletion and amortisation (unit of production method)
• Borrowing costs
• Abandonment
• Revenue recognition (overlifts vs. underlifts)
• Farm outs vs. farm ins
• Post balance sheet events and impairments
• Disclosure of reserves and resources (US GAAP vs. IFRS)
• Structure and layout of financial reports and filings, interpretation of financial statement disclosures, including PV-10 DCF disclosures under US GAAP
• Standardised measure of cash flows (EBITDA, EBITDAX, DACF, CF to shareholders)
• Analysis of key operational and financial ratios:
  
  • Reserve replacement ratio, reserve life ratio, reserve value ratio
  • Production cost per barrel, DD&A per barrel, EBITDAX per barrel, replacement cost per barrel

Comparable Valuation Analysis Learning Outcomes

• Select comparable companies
• Obtain historic and projected data
• Normalise the results and exclude extraordinary charges
• Compute operations metrics: EV/1P or 2P reserves, EV/MCFE
• Compute operational metrics: EV/DACF, EV/EBITDA, EV/EBITDAX, P/CF, Price/NAV and P/E
• We will examine E&P companies listed in the US, Europe and Asia Pacific regions