Typical mid-cap e&p company is valued via two main valuation methods:

-         Asset-based valuation

-         financial “peer” valuation

 Modelling is based on a number of assumptions made by the analysts in order to predict the potential scenarios. The typical ones for the Ukrainian gas market are:

• Gas prices (for example, this may be based on the cost of Russian gas at the German border, etc.)
• Inflation (UAH inflation estimates may be taken from the IMF (International Monetary Fund) forecasts)
• Exchange rates (these may be obtained from a reputable economic research consultancy)
• Fiscal regime (these may be taken directly from the legislation)

1UA1 offers a range of financial modelling services depending on your company’s needs. We will build a comprehensive model for you from scratch and provide you with all the necessary explanations and interpretations as to its meaning and implications.

 

Asset-based valuation:

 Reserve Valuation:

-         Valuation based on “Proven and probable” reserves (i.e. booked reserves)

-         Usually taken as Enterprise value or Market Cap per barrel of oil equivalent (EV/Boe or Mcap/Boe)

Production Valuation:

-         Valuation based on the discounted net present value of a company’s reserves

-         Not the same as NPV10 figures published in placing documents or engineering reports

• NPV value published by broker
• Based on estimate of production profile of company by analyst
• Based on rule of thumb discount factor

Financial peer valuation:

-         EV/EBITDA

-         Price earning ration (P/E)

-         EV/Debt adjusted cash flow

• DACF= post tax cash flow plus cash interest expenses less the tax shield generated by the interest expense

 Formulas and definitions  

¤  Market Cap = company’s shares outstanding * current market price of one share

→ It is usually used to determine the company’s size

¤  Enterprise Value (EV) = Market Cap + Debt + Minority interest + Preferred shares – Total cash and cash equivalents

→ It is usually used to determine company’s value

¤  Net Present Value is the difference between the present value of cash inflows and the present value of the cash outflows.

→ It is usually used to determine the profitability of an investment/project.

¤  P/E ratio = Market Value per Share / Earnings per Share (EPS)

→ Price to earnings valuation ratio measures a company’s current share price compared to its per share earnings

¤  EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation) = Revenue – Expenses (excluding interest, tax, depreciation and amortisation)

→ This indicator is usually used to analyse and compare profitability between companies and industries