The Evolution of Economic Forecasts and Risk Adjustments in Property Evaluation in the U.S.

Hickman, T. Scott

doi:10.2118/18910-pa

Cited by 5 publications

(3 citation statements)

References 3 publications

(3 reference statements)

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“…Hickman 11 and others have observed that high-quality cashflow producing assets typically sell for about 75% of NPV. Even though SEC reserve reporting requires unrealistic valuation assumptions, the 25% discount (i.e., a 0.75 FMV discount factor) is a reasonable adjustment.…”

Section: Market Capitalizationmentioning

confidence: 99%

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Balanced Scorecard Linked to Shareholder Value: Making the Numbers Count

Schuyler¹

2005

All Days

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TX 75083-3836, U.S.A., fax 01-972-952-9435. AbstractThe "balanced scorecard" (BSC), popularized by Kaplan and Norton, has become widely recognized both as a performance measuring vehicle and as a strategy communications tool. Typically, 20 to 25 measures (performance drivers and/or indicators) are chosen for the BSC-to align people, processes and investments with the company's strategy. New "dashboard" type software enables an attractive BSC presentation. Because of data accessibility, BSC measurements are almost universally historical or current data.More importantly than lag measures, what decision-makers need are forecasts. And credible forecasts are generated from a Monte Carlo simulation of the company, industry, and economic environment. The BSC process merges "management by objectives" with the "system dynamics" modeling approach. System dynamics offers the best process for enterprise modeling, yet this link is generally missing from BSC implementations. The stochastic company model is also the means for optimizing the asset and project portfolios and for tuning investment decision policy.Most corporate executives acknowledge that the sole or overarching objective is maximizing long-term shareholder value. This paper describes an approach for incorporating shareholder value and related key forecasts into the BSC. Share value is approximated by forecasting the company's free cash flow with the company model.Resolving the discount to get from expected monetary value to market capitalization presents some interesting issues. Share value is tracked and forecast, so people in the company can answer, "Are we creating or destroying shareholder value?" Balanced ScorecardsDecision support system software and management consulting have flocked to a new specialty area: balanced scorecards. This section briefly reviews the background and key concepts of BSCs.

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Section: Market Capitalizationmentioning

confidence: 99%

“…For example, Scott Hickman reported typical risk-adjustment factors seen in petroleum property purchases. 11 These factors convert NPVs in a quality engineering appraisal report to typical FMVs. I hypothesize that shareholders do similarly in valuing a company (or would if they had the data).…”

Section: Market Capitalizationmentioning

confidence: 99%

Balanced Scorecard Linked to Shareholder Value: Making the Numbers Count

Schuyler¹

2005

All Days

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“…Author should emphasize that the ranking projects by cash flow measures are very important, but the nonquantifiable facts sometimes are much more important 20 . It is a pre-condition as well in every case that, during the activity, the company's strategic, professional, commercial and operational aspects should be enforced.…”

Section: Qualification and Rankingmentioning

confidence: 99%

How to Measure Exploration-Production Efficiency

Komlosi¹

1999

Proceedings of SPE Annual Technical Conference and Exhibition

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Selecting Economical Viable Project Using the Effective Profit Indices and Investment Margin Concept

Biu¹,

Biu

Buduka

et al. 2010

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Conventional profit indicators NPV, P/I, ROR and PBPare prefer by economist, business analyst, engineers and even the academia for identifying economically viable projects where comparative and critical investments decisions are to be taken. Though sometimes considered as quick look, major investment in the oil and gas industry have rely on the analysis and interpretation of these profit indices before final investments are made. However these interpretations can be misleading where there is changing cash flows with different discount rates resulting in different recommendations; thereby increasing risk and uncertainties inherent in each project. This paper introduces the effective profit index EPI and depleting profit index DPI. which examine the limitation of P/I, NPV, ROR, PBP and integrate it into a robust model to understand and identify progressive profit index with time for improved decision making. Results indicate DPI exhibit similar interpretation with the GRR and often times with any of the profit indices such as P/I and NPV as seen in both cases review. Also in case 1, the project with initial high EPI such as P and Q with higher IRR are overtaken with time, thus suitable for making investment decision when IRR is uncertain and also visualized the progressive profit margin with time.

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The Evolution of Economic Forecasts and Risk Adjustments in Property Evaluation in the U.S.

Cited by 5 publications

References 3 publications

Balanced Scorecard Linked to Shareholder Value: Making the Numbers Count

Balanced Scorecard Linked to Shareholder Value: Making the Numbers Count

How to Measure Exploration-Production Efficiency

Selecting Economical Viable Project Using the Effective Profit Indices and Investment Margin Concept

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