stock valuationI have been reading the valuations provided by analysts and the discussion on this board about valuations based on $ boe in the ground or $ boe daily production. Also it has been stated that the Kazakhstan take back was one of the worst in the world. I am trying to reconcile what would appear to be a bleak picture versus the strong buy recommendations from analysts. I have come to the conclusion that while barrels of oil in the ground is yardstick it is not the accepted way of valuing the equity of oil and gas companies.
The accepted method of valuing oil and gas companies is cash flow - cash flow is king. Cash flow is a function of many variables including production rate and reserves, oil proces, production costs, capital investments, taxes, royalties overhead etc.
Generally, analysts value oil and gas companies based on the DCF model - specific to the oil and gas industry base don a cash flow model. The equity value or share price is based on many variables other than simply reserves. The DCF model would include the state take back provisions of the contract. The fact TPL is cash flow positve obvioulsy affects the valuation. That is not to say that reserves and prospects are not important but only play a part in th evaluation.
What is so prmising for Tethsy is that even if the take back provisions are not the greatest, I would rather skim a little of a huge pie than a lot of a little pie.