Unformatted text preview: proved reserves will be used as a proxy for the size of the
organisation and as an indicator of recent, past results in investment decisionmaking.
• Wood Mackenzie’s estimate of each company’s total base value (TBV). As
indicated above, Wood Mackenzie calculate this measure by summing the values
of a companies’ commercial reserves, technical reserves and the value of currently
held exploration and an assessment of its potential. For the organisational performance ranking, this measure is particularly attractive as it explicitly
includes an assessment of the success of recent, past investment decision-making.
However, Wood Mackenzie only publish an estimate of each company’s U.K.
TBV complied from UKCS data. This is an obvious weakness as some companies
choose not to operate in mature basins like the UKCS or are scaling down their
operations due to the high costs involved in operating in the U.K. (Section 3.3 of
Chapter 3). Currently, however, no other group of analysts produces a similar
measure reflecting worldwide TBV (or an equivalent criterion that reflects the
value of recent exploration). Acknowledging then the weakness of the measure,
but recognising there is no alternative criterion, this research will use the U.K.
TBV produced by Wood Mackenzie in combination with other criteria that are
indicative of worldwide performance.
• Return on equity (ROE). ROE is defined as the equity earnings as a proportion
of the book value of equity. It is a measure of overall performance from a
stockholder’s perspective and includes the management of operations, use of
assets and management of debt and equity. ROE measures the overall efficiency
of the firm in managing its total investments in assets. In the context of the
upstream, this measure does not include the effects of decisions taken in the recent
past. (In fact, the opposite since although the measure acknowledges the monetary investment of recent decisions, the long payback period means that
171 returns have not yet been earned). The measure is included in the performance
ranking for comparison with the criteria that do reflect the effects of recent
decision-making and as an indicator of the results of past investment decisionmaking.
• Market capitalisation (MC). MC is defined to be the total value of all outstanding shares in sterling. It is used in the performance ranking as a measure
of corporation size.
• Number of employees (NOE). The NOE is used in the performance ranking as a
relatively coarse indicator of both past success and anticipated future success in
selecting and gaining access to the best investment opportunities. • Price earnings (PE) ratio. The PE ratio relates the market value of a share to the
earning per share and is calculated by:
Price earnings = Market value per share
Earnings per share
The ratio is a measure of market confidence concerning the future of a company.
In particular, it is used in the performance ranking as an indicator of growth
potential, earnings stability and management capabilities. The higher the price
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This document was uploaded on 03/30/2014.
- Summer '14
- The Land