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From TFA: > If a consortium of private-equity investors raised the $118 billion needed to buy BP at its current share price, it could immediately start to liq
by Narkov 11y ago
From TFA:
> If a consortium of private-equity investors raised the $118 billion needed to buy BP at its current share price, it could immediately start to liquidate 10.5 billion barrels of proven reserves worth over $360 billion, even at today’s “depressed” price of $36 a barrel.
Their oil reserves alone are worth nearly 3 times the market value of the company. The other assets you talk of could even have a negative value of $100b and the equation still works.
- fauigerzigerk 11y agoIt just doesn't add up. If their reserves are actually worth that much to a private equity investor, why are they supposed to be so worthless to BP (and Shell and Exxon ...) that it should liquidate itself? These assets are either profitable or not. If they are profitable, why sell them? If they are not profitable, why buy them? It can't be both. Not for an entire industry that is.
- khuey 11y agoMoney needs to be spent in order to extract the reserves. They don't have all that oil sitting around in a tank somewhere, it has to be pumped out of the ground.
- lmm 11y agoYahoo has been trading well below its book value for a while. If you believe that the company is about to destroy a lot of money by spending it on unprofitable R&D then it makes sense to value it at less than its current assets. (Obviously current management will spend on R&D because they believe it will ultimately produce more value than it costs, but maybe the market disagrees).
- fauigerzigerk 11y agoI have no problem with the "investing too much in exploration" part of his argument. But avoiding overinvestment is not what unleashes the tsunami of cash he's talking about. It's asset sales that should bring on that tsunami of cash. What is the break even of oil companies' proven reserves after not overspending on investment? That is the all important question. If that break even is below future long term oil prices, as he seems to suggest, then these assets are worth exactly $0.
- tim333 11y agoHe's ignored costs. 10.5 billion barrels * $36 = $378 bn. But they probably cost something like $25 a barrel to extract so $115bn, plus financing costs because it would take say 10 years to get it and sell it, say 6% interest reduces the NPV to $65 bn. A lot of businesses would look great if you could assume they were worth potential sales with no costs attached.
- D_Alex 11y agoWhat's worse - the oilco usually operates under a Production Sharing Contract or some kind of resource rent tax/royalty regime. Often, the oilco share of the oil is less than 50% of production. So, unfortunately for BP etc, the revenue will be way less than what the article suggests.