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Here’s why mutual fund valuations of private companies can vary

Here's why mutual fund valuations of private companies can vary

Mutual fund providers including BlackRock may value their investments in private companies differently, within a narrow range, for a number of good reasons. The process used by U.S. mutual fund companies to pin a value on shares of private technology … Continue reading at marketwatch.com

UPDATE 1-Mutual fund investors drive money out of U.S. stock funds -Lipper

(New throughout, recasts headline, adds context and analyst quote) By Trevor Hunnicutt NEW YORK, Nov 19 Stock funds posted $ 2.2 billion in outflows during the week that ended Nov. 18, Lipper data showed Thursday, marking a second consecutive week of … Continue reading at reuters.com

Best And Worst Q4’15: Mid Cap Blend ETFs, Mutual Funds And Key Holdings

The Mid Cap Blend style ranks eighth out of the twelve fund styles as detailed in our Q4’15 Style Ratings for ETFs and Mutual Funds report. Last quarter, the Mid Cap Blend style ranked ninth. It gets our Dangerous rating, which is based on aggregation of … Continue reading at seekingalpha.com

Mutual Funds

The 3 Best Vanguard Mutual Funds for Your Roth IRA

Vanguard offers mutual funds that are suitable for holding in a Roth individual retirement account (IRA). Vanguard has funds with different asset types, including equities, bonds and real estate investment trusts (REITs). The appropriate asset allocation … Continue reading at investopedia.com

Intel Lawsuit Questions Place of Hedge Funds in Retirement Plans

They are far less common in 401(k) plans, which are aimed at individual employees and typically limit investment choices to mutual funds that hold publicly traded stocks and bonds. An Intel spokesman declined to comment on the litigation. But the company … Continue reading at nytimes.com

Mutual Funds For Dummies, 5th edition
This book provides expanded coverage of ETFs, fund alternatives, and Internet research. Cash in on the latest wealth-building tech…

Mutual Funds: Portfolio Structures, Analysis, Management, and Stewardship (Robert W. Kolb Series)
An authoritative, must-read guide to making more informed decisions about mutual funds Providing a balance of theory and applicati…

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John C. Bogle, founder of the Vanguard Group of Investment Companies, has built a $100 billion mutual fund company on princi…

Mutual Funds

Concentrated Mutual Funds: Leaving Too Much to Luck

The International Monetary Fund had raised caution back in September, on US mutual funds with large positions in high-yielding bonds that are issued by risky companies in the country or in emerging economies. To tap the low-rate environment, many mutual … Continue reading at finance.yahoo.com

3 Best Fidelity Funds for Dividends

We were also mindful not to just seek out the highest yields, but to find mutual funds that can dish out decent dividends without taking what we thought was excessive market risk. Continue reading at investorplace.com

5 Zacks Rank #1 Non-US Mutual Funds to Boost Your Return

Investors may find non-U.S. mutual funds more attractive than those having significant domestic exposure in the current backdrop of rate-hike fears and crude slump. Moreover, the strengthening of U.S. dollar on Fed policy tightening amid global monetary … Continue reading at nasdaq.com

Axis MF launches Axis Children’s Gilt Fund

Axis Mutual Fund has launched a new fund as Axis Children’s Gilt Fund, an open ended balanced scheme. The investment objective of the scheme is to generate income by investing in debt and money market instruments along with long-term capital appreciation … Continue reading at moneycontrol.com

BNY Mellon Income Stock Fund

Since that time, we have been delivering investment capabilities to the institutional community, as well as to retail investors through sub-advised mutual funds. Today, we are an independently operated equity investment boutique, anchored by BNY Mellon … Continue reading at ticker.com

* When you’re valuing an E&P (Exploration & Production) company, the Net Asset Value (NAV) Model is the key methodology.
By http://breakingintowallstreet.com/ “Financial Modeling Training And Career Resources For Aspiring Investment Bankers”
UNLIKE in a DCF, where cash flow growth is assumed into infinity, in a NAV model you assume the company’s cash flows go to eventually as it completely produces all of its reserves and has nothing left.

A granular NAV model is complex, but it comes down to a 2-step process:

Step 1: Model the company’s existing production from wells it already has… and assume a decline rate for the annual production each year, also assuming commodity prices to determine revenue, and linking operating expenses to production and calculating cash flow like that.

Step 2: Assume the company drills new wells in its PUD (Proved Undeveloped), PROB (Probable), and POSS (Possible) reserves.

The second step involves dozens of sub-steps and assumptions, but here we’re just going to focus on ONE small part of this process: estimating the decline rate of a new well the company drills.

It starts off at a very high production rate, but then declines quickly within even the first year of its useful life – and we need to estimate the decline rates each year to build the rest of the model.

You COULD do lots of complicated math, try fitting hyperbolic or exponential functions, run a regression analysis, etc., but we suggest a much simpler approach here: if the company doesn’t disclose data on its decline rates for individual wells, find data from another company operating in the same region and fit it to your company’s “average” wells.

How to Do That:

Step 1: Find the company’s key data, such as the EUR per well and IP rate per well in the region you’re looking at.

Step 2: Now, see if the company discloses data on its own decline rates… if so, you’re set!

If not, or if it’s not enough, find another company operating in the region that discloses more data (EQT here), and go to that company’s investor presentations to get the numbers.

Step 3: In the first year, assume that production is some % of 365 * IP Rate per Well… because there is a huge drop-off in daily production from Month 1 to Month 12 in that first year.

EQT’s data shows 45%; we assume 60% here since UPL has a slightly flatter decline curve.

Step 4: Copy and paste the other company’s decline rates into each year of your decline curve.

Step 5: Enter the correct formula for calculating annual production each year AFTER the initial year… here:

=MIN(AU129*(1+AT130),$AT6-SUM(AU9:AU129))

Want to take either Last Year Production * (1 + Decline Rate) (the first part), or the total remaining reserves in this well (the second part).

Step 6: Set up Subtotal / Remainder / Total math and ensure that everything is produced.

Step 7: “Fit the data” using Goal Seek and the Factor – multiply each decline rate by a certain factor and use Goal Seek (Alt + A + W + G) to solve for the factor that makes the Subtotal equal to the EUR.

Step 8: Build in support for a different EUR by scaling the production up or down in the “Total” column.

Step 9: Allocate the production to oil vs. gas. vs. NGLs.

Step 10: Complete the Subtotal / Remainder / Total math at the bottom.

What Next?

Next, we’d complete this process for all the wells the company drills in every region, estimate revenue, expenses, and cash flow for each one, and then aggregate the discounted cash flow values in every region across all reserve types…

Which brings us closer to the implied NAV per share, which is what the NAV model is really all about.

Stay tuned for more!

Mutual Funds

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Comments

    • Jun Liu
    • November 20, 2015

    Hi, do you have a tutorial for metal & mining as I notice that most major banks have such separate coverage. Or modeling techniques and business model of oil & gas apply to metal & mining, too? Thanks.

    View Comment
    • BoomerE30
    • November 20, 2015

    Thanks for the great tutorial!

    Is the excel file available by any chance?

    Thank you!

    View Comment
    • Jonathan Ma
    • November 20, 2015

    Great info! Do you have any recommendations for someone with a generalist corporate finance background looking to learn more about the E&P sector?

    View Comment
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