I want to make money on unloved oil companies, but it seems like every time I analyze one, I need to spend several hours identifying all of management's half-truths, omitted data, and outright lies. Here's a rant from a layman about the kind of shit I'm talking about:
Management teams love to talk about their low cost per barrel. It's a scam. They will almost always disclose the cost to pump the oil out of the ground, and neglect the (huge) costs of drilling the wells. These costs are especially huge for short-life shale wells.
Maybe you think that the answer is simple; just look at depreciation. Ha! If only. Oil companies have a tendency to take huge impairments on a periodic basis, so current depreciation is likely far lower than "real" depreciation, especially right after a bear market.
Well, what about looking at capex? You're getting closer to some version of "the truth", but good luck trying to figure out how much capex is necessary to maintain steady production vs growth.
Even if you think you know how much capex is "maintenance capex", which should enable you to estimate "free cash flow", you still only have information for a point in time. Companies' assets have varying quality, and they drill the best spots first, so the numbers get worse.
If you're a "NAV" guy, have fun with that. Official NAV estimates (I'm focused on Canada here, which has 'good' disclosures) rely on consultants' price forecasts. Do they use strip pricing? Nope. They just assume that oil prices keep going up forever.
I've only just scratched the surface. Misleading oil/gas conversion factors, hidden reclamation liabilities, unmentioned overheads, the list goes on. I'm sure there are a million things I don't know, and will never know. I'm just a layman, trying to make a buck.

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