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You are an investor who is considering investing in one of two oil companies, Company A and Company B. The following partial unaudited disclosures...
You are an investor who is considering investing in one of two oil companies, Company A and Company B. The following partial unaudited disclosures are taken from the companies' 10-Ks.
Company A Company B
Proved Reserves (in MMBOE)
Net proved reserves 1/1/20X1 2,615 2,963
Revisions of previous estimates (30) 6
Purchases of reserves in place 2 1
Extensions, discoveries, and other additions 524 261
Sales of reserves in place (189) (15)
Production (244) (253)
Net proved reserves, December 31, 20X1 2,678 2,963
Results of Operations from oil and gas (in millions of dollars)
Oil and gas sales $ 7,052 $ 8,522
Production costs (1,388) (3,020)
Impairment 0 (1,953)
DD&A (2,589) (2,465)
Income (loss) before tax provision $ 3,075 $ 1,084
Costs Incurred in Acquisition, Exploration, and Development (in millons of dollars)
Acquisition of properties $1,019 $ 238
Exploratory costs 699 595
Development costs 4,888 5,089
Costs incurred $6,606 $5,922
Changes in Standardized Measure of Oil and Gas (in millions of dollars)
Balance 1/1/X1 $14,666 $13,221
Sales and transfers of oil and gas,
net of production cost (5,535) (5,613)
Net changes in price and production costs 2,021 3,018
Extensions, discoveries, and other additions,
net of related costs 6,008 4,047
Development costs incurred 1,582 1,986
Net change in future estimated development costs 1,287 399
Revisions of previous quantity costs and
development costs (805) (1,040)
Accretion of discount 1,777 1,940
Net changes in income taxes (1,180) (1,604)
Net change in purchases and sales of reserves
in place (1,950) (30)
Changes in timing and other ( 481) (583)
Balance 12/31/X1 $17,390 $15,741
Compare the two companies using the above information and decide where you would invest. Formulas for the oil and gas ratios are provided below.
(a) (6 points) Compute the ratios for which you have data for the two companies.
(b) (8 points) What additional information would you need to compare the two companies before you decide in which company to invest your money? Discuss why you would need each additional item of information.
(c) Given the limited data you have, which company would you invest in and why.
