The book value of reserves and resources – i.e. the amount of hydrocarbons that can be economically recovered from the field – is the net capitalized costs associated with developing oil and gas properties. This calculation is critical, as accountants equate the book value of reserves and resources directly to reserves value, which together with level of production and commodity price at the time of assessment are the key metrics used to arrive at the book value of an oil and gas firm.
Therefore, book value has a direct bearing on both the share price of an oil and gas firm and the approach it takes to portfolio management. Likewise, the forecast techniques employed to arrive at book value exert indirect, but considerable influence on commercializations and how all stakeholders, potential investors, and lenders approach investment.
- Oil&Gas Financial Journal
