(06-07-2013, 06:41 AM)IOCHUHU Wrote:Interesting thing about announcing FID is that per accounting standards IOC will book their share of the resources as RESERVES ON THE BALANCE SHEET. However, they will priced based on IOC's cost of drilling which we all know is very low. That will probably be the next short argument. "Yeah the have a great deal but but but look how over valued the company is based on the value of their reserves on the balance sheet."
I do not believe it is correct that the assets are valued at cost. Please see the referenced article http://www.turnaround.org/Publications/A...ectID=9783 .
It states that
"With a current reserve report, a valuation expert can plug in pricing assumptions over the life of the property and calculate the future net revenue. Future commodity prices are important variables in determining fair market value but are uncertain at best." Also, Comparable Sales and Capitalization models may be used.
Additional Reference http://www.investopedia.com/ask/answers/...-sheet.asp
"Oil companies can value their reserves by finding their net present value less extraction costs (also known in the industry as "lifting costs"). Depending on the method of accounting for exploration, full cost versus successful efforts, certain costs of finding reserves are capitalized."
I would guess that Interoil's accountants have already put a model together that will value their reserves.
CF