Could be. Certainly true that 10% is low for ke for SEA
However, the measurement was meant to "standardize" (FASB Accounting Standards Codification (ASC) 932) the future cash flow relating to 1P O&G Reserves. Process followed is:
1. Estimate quantity of proved reserves and future periods during which they are expected to be produced based on SEC Final Rule guidelines (which includes the 5 year rule).
2. Apply SEC first day of month prices to the y/e quantity of (1)
3. Reduce by estimates for: (a) production costs, (b) costs to develop and produce the proved reserves, (c) abandonment costs, which are all based on those year-end economic conditions.
4. Apply future income tax expenses (using y/e statutory tax rates) which is important as it relates to other deductions/credits.
5. Remaining future net cash flows now discounted to PV by applying a discount rate of 10%
There is a little more to it but since its "post tax" and each company has its differences we might well be saying the same thing as (4) is a bit of a catch all.
Great work on the scenario analysis. IMO, we are (again) circling the age old debate about what the true decline rate is.
SEA Price at posting:
21.0¢ Sentiment: Hold Disclosure: Held
A personalised tool to help users track selected stocks. Delivering real-time notifications on price updates, announcements, and performance stats on each to help make informed investment decisions.
