MetaTrends Profit

Reserves per Unit is much better than Reserve Life Index

Yahoo! CWEI:
"RLI is relatively worthless because it tells you how many years a company can produce at their current rate of production. For example, people often buy COS because of their high RLI of 47.6 years because they think this will make them money (I just use COS as an extreme example and am not trying to badmouth them). But if COS is successful and gets production up to 4 times today's level, their RLI goes to 11.9, not because they have less reserves, but because they are finally able to produce more.

Staying with the example, if COS.UN, needing to raise billions in the coming years, to expand production, issues more and more units (assuming that is how they raise the cash) thereby reducing the number of BOE underlying each individual unit. So, if they double the number of units to finance Capex, the number of BOE underlying each unit goes down 50%. Looking at RLI doesn't let you know that your 'assets in the ground' are declining.

I want to own companies that will increase production as fast as possible and increase the reserves underlying MY ownership interest as soon as possible.

Managments in the Trust and E&P sector justify higher salaries and bonuses when they manage more reserves and production. If they have to dilute people's ownership interest to do so, they often will do it because it is to their advantage, even if it is not to the advantage of the individual unit holder.

I calculate RPU by dividing each class of yearend reserves by the number of fully diluted units. I update every time they issue more units and/or get more reserves. I place more weight on the different reserves in the following order: Proved Producing, Proven, Proved+Probable.

The RAY (risk-adjusted-return) is NOT a % number. It is just"

posted by agrossfarm @ 7:12 AM