I've done some homework, and of course, you are correct. The...

I've done some homework, and of course, you are correct. The accounting rule in question is AASB 136 which, best as I can tell, says the carrying value of an asset is the lesser of:

• the depreciated historical cost, and
• recoverable value

Where recoverable value is the greater of:

• current market value less selling expenses, and
• NPV of all future CF

So yes, when OEL wrote the carrying value of OEL down to zero, they're saying the NPV15 of abandonment costs are equal to the NPV15 of all future FCF of that well. If oil prices fall, or the well underperforms expectations, or abandonment costs are more than budgeted, then the well has negative value.

To properly decompose the total OEL P&A, we need to know well-by-well life expectancy and expected abandonment costs. To my knowledge, we do not have that. Just to do something I assumed all wells have an 8 year life as of 30jun2024, and that suggests true un-discounted abandonment costs are US19M, and the abandonment liability on the books will go up ~US$1M next year. Those are AUD 0.0061/s and AUD 0.0003/s respectively. Notably, that total P&A liability not only exceeds the cash that will be left on the BS after the upcoming dividend, but in fact exceeds the expected market cap. This really casts some doubt on the value of my EV/FCF calcs; I don't know how to balance the cash with the P&A liabilities.

@gdn001, I really appreciate you helping me understand this - thanks!

For those who notice the change in my sentiment, yes this has changed my mind on OEL and I bailed.