Doing my homework on an O&G interview. I read previous threads on E&P valuation/NAV model but am still confused.
So, I'm pretty clear whatis: discounting back future and terminal value at to arrive at total asset value. NAV, by definition, is the difference between market value of assets minus market value of liabilities. Market value of assets is estimated by an SOTP of oil reserves and exploration sites.
But how to estimate the value of an oil reserve? What cash flow should I discount (/ - interest expense)? at what rate(equity rate of return/ )?
My understanding for now is that I should discountgenerated by a reserve (projected production*oil price - operating costs - royalty - capex - cash tax) at . Then do a SOTP. But if this is the case how does it differ from a ?
Correct me if anything above is wrong.
Thanks very much.