I have an outstanding bet with a peer of mine that the Dec 31 oil price will be $63/bbl. Unfortunately, that doesn’t help the 2019 SMOG price (Mr. Hottake, I was told SMOG is a bad measure!) Well, it’s time to revisit.

SMOG is the standardized measure of oil and gas, found in every annual report and summarizes the third party proved reserves using the SEC price (1st D of Mo avg for 12-mo), 5 year PUD rule and 1P curves. It’s not perfect, but it is standardized across all companies. So- why aren’t more people aware of it?

Unlike consumer products where you have to guess the whims of your customers- O&G is really easy. You have wells. They produce a ‘predictable’ stream of cash. You know the cost to drill them. And roughly how many you have. Slap on a price and Tada!! An actual NAV.

Of course, analysts like to use comps (because they are easier?!). But they are also very wrong. So. Here’s how I value a company.

I grab the outstanding share count and total debt from the balance sheet; the interest and S,G&A from the income statement and the cash flow from…well you know where.

Next, use CTRL+F in the annual report using the word ‘Standardized’ to find the table. Take the SMOG less debt less 3 yrs of interest and G&A and divide by share count.

Now you know.