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Introduction to Oil Company Financial Analysis

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Product Description


by David Johnston and Daniel Johnston

There has always been a bit of magic in the stock market, especially when it comes to oil companies. When the oil industry and the stock market get together, the affair is usually dynamic and not always pleasant. Basic principles are widely understood in the financial industry, but the terminology and analytical techniques can vary greatly. This book is written for the nonfinancial shareholders, managers, and oil company employees interested in the forces that influence stock values. The bottom line in any company is expressed in the language of finance. This book explains financial concepts in a nontechnical, practical way so that nonfinancial professionals and others may understand and appreciate this aspect of the business. The value information found in this book includes:

  • Abbreviations and expanded definitions of key terms
  • Energy conversion factors
  • Reporting systems & statements
  • Stock tables explained

Table of Contents:

  • 1. Introduction: Oil Prices; Diminishing Supplies and Increasing Demand; Mega Mergers; The Stock Market
  • 2. Fundamentals of Valuation: Market Value; Fair Market Value; Technical Analysis; Dow Theory; Fundamental Analysis; The first step-Economic conditions; The second step-Industry analysis; The third step-Company analysis; Asset- vs. Income-Based Techniques; Asset-based valuation concepts; Control premium; Income-based valuation concepts; Efficient Market Hypothesis; Random Walk Theory ; Catch-22; Niels Bohr-Early EMH proponent; Stock Quotations; Accounting Value vs. Economic Value; Future and Present Value Theory; Future value; Present value; Annuities; Perpetuity; Present value tables; Internal Rate of Return; Cost of Capital; Cost of debt; Cost of preferred stock; Cost of equity; Capital asset pricing model; Summary
  • 3. Accounting Systems for Oil and Gas: Generally Accepted Accounting Principles; Accounting concepts; Governance, transparency, and disclosure; Reserve Recognition Accounting FC and SE Accounting; SE accounting; FC accounting; Ceiling Test Limitation; Book value, SEC value, and FMV of reserves; Depreciation, depletion, and amortization; Cost Depletion and Percentage Depletion; Summary and Key Concepts
  • 4. Financial Statement Analysis: Annual Report; The Income Statement; The Balance Sheet; The Statement of Cash Flows ; Form 10-K; Form 10-K Oil & Gas Reserves; Financial Analysis; CVX financial statements; Quick look; Ratio Analysis; Analytical perspectives; Ratios; Liquidity ratios; Profitability ratios; Activity ratios; Dividends; Valuation ratios; Energy ratios; Ratio Roulette; CVX; CVX Highlights 2001; Summary and Key Concepts; How much is too much debt?
  • 5. Valuation of Common Stock: Guidelines for Estimating Value; IRS guidelines; SEC guidelines; Book Value; Book value multiple; Debt-adjusted book value multiple; Adjusted book value; O&G Properties; Long-term Investment in Stock; Off-Balance-Sheet Activities Involving the Cost & Equity Methods of Accounting; Consolidation and minority interests; Off-balance-sheet assets and liabilities; Long-term leases; Synthetic leases; Litigation; Environmental Liabilities; Exxon Valdez spill in the Prince William Sound, 1989; DR&R-Abandonment; Off-Balance-Sheet Commitments Drilling Commitments; Summary; Discounted cash flow analysis; Adjustments; Net income; DD&A; Deferred taxes; Extraordinary items; Other adjustments; Exploration expenses; Research and development; Interest expense; Free cash flow; Operating income multiple; Comparable sales; Replacement value; Combined appraisal techniques
  • 6. Competitive Comparisons: Individual Investment; Institutional Investment; Employment; Benchmarking M&A Potential; Identification of Peer Group; Line of business; Size; Market or location; Other considerations; Identification of Comparison Criteria; Study the sector; Sources of information; Identify the industry or sector concerns; Integrated O&G industries; E&S; E&P; Drilling; Refining and marketing; Utilities
  • 7. Segment Valuation: Proved Reserves; Acreage; Transportation; Pipelines; Tankers; Refineries; Industry Structure; Financial Analysis and Evaluation of Refineries; Nelson Complexity Index; Refinery value dollars per barrel per stream day; Valuation of Chevron and Texaco refinery segments; Marketing Outlets; Gas stations; C-stores; Truck stops and travel plazas; Hypermarkets; Marketing Trends
  • 8. Value of Reserves-in-the-Ground: Value of an Oil Discovery; Value of Producing Oil Reserves; Value of a Gas Discovery
  • 9. Corporate Restructuring: The Language of Corporate Restructuring; History; Merger waves; M&A driving forces; Spin-off MLP; LBO; Share Repurchase; Targeted Stock; Restructuring; Fair Price Requirement
  • 10. Legal and Tax Environment for Mergers: Laws and Regulatory Agencies; Sherman Antitrust Act of 1890; Clayton Antitrust Act of 1914; State antitrust "Blue Sky Laws" and M&A legislation; FTC Act of 1914; Securities and Act of 1933 Securities & Exchange Act of 1934; The Celler-Kefauver Antimerger Act of 1950; Uniform Securities Act of 1956 "Blue Sky Laws"; National Securities Markets Improvement Act of 1996; The Williams Act; Hart-Scott-Rodino Act of 1976 Tax Environment; Accounting methods; Pooling of interests; Purchase method; The Transaction Structure; Tax-free transaction; Types of corporate reorganization; MLP; SOX; Conflict of interests; GAAP
  • 11. Valuation of Bonds and Preferred Stock: Bonds; Bond yields; Bond ratings; Preferred Stock; Cumulative preferred stock; Convertible preferred; Tax considerations
  • Appendix 1 Abbreviations; Appendix 2 World Energy Statistics; Appendix 3 Production Statistics for Key Energy States 1989, 1999; Appendix 4 State Severance and Ad Valorem Taxes 2001; Appendix 5 Crude Oil & Gas Prices; Appendix 6 Energy Conversion Factors; Appendix 7 Present Value of One-time Payment; Appendix 8 Present Value of an Annuity; Appendix 9 Natural Gas Products; Appendix 10 Information Sources; Appendix 11 Reporting Systems & Statements; Appendix 12 Enron & SPEs; Appendix 13 Stock Tables Explained; Appendix 14 Charts & Technical Analysis; Appendix 15 Energy Sector P/E Ratios; Appendix 16 The Reinvestment Assumption; Appendix 17 Value of Information in the Public Domain; Appendix 18 Expanded Definitions of Key Terms; Appendix 19 M&A Jargon
  • Glossary

447 pages/Hardcover/October 2005
ISBN10 1-59370-044-X

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