Question 9 - How can your auditors potentially make your IFRS conversion pay for itself and add asset value to your company?

This is the ninth question in the list of ten questions to ask your auditor if you are a Canadian based oil and gas company. The original post can be found here.

How can your auditors potentially make your IFRS conversion pay for itself and add asset value to your company?

Most companies look at the transition to IFRS as cost that they have to incur, but there is a potential to increase the value of your oil and gas company, reduce capital expenditures and identify missed revenues that will help pay for the conversation.

For example, Argentis Group has a process that we run in oil and gas companies to identify missed reserves and missed revenue. On average we identify 9% missed on reserves. For the average junior oil and gas company this would be equal to identifying 919,011 barrels of oil equivalent (BOE). This number was derived from using the average barrel of oil equivalent per day (BOED) of Junior oil and gas companies listed on the TSX with production in the Western Canadian Basin, which is 2,690 and multiplying it by the average reserve life index of junior companies of 10.4 year. (2,690 BOED X 10.4 years x 365 days). The average Find and Develop (F&D) cost per BOE in the Western Canadian Basin is $16. So at $16/BOE in F&D costs times 919,011 BOE would be equal to $14,704,176 in find and develop costs.

So by identifying 9% missed reserves, a company has the potential to free up $14.7M in capital that would normally be associated with reserves replacement.

In addition to this, by identifying these missed reserves, a company will now be able to increase net asset value (NAV) by up to $11M. This is calculated by using the same 919,011 BOE and multiplying this by $12/BOE for NAV. $12 is the average NAV per BOE in the Western Canadian Basin.

In addition to increasing NAV and offsetting capital costs associated with reserves replacement, Oil and gas companies should also look for missed royalties or missed working interests. These revenues can also add up to potentially offset IFRS costs.

Argentis Group can help your company in providing a way to pay for your IFRS conversion all while increasing the value at the same time.

These opinions are mine and may not reflect your view. If you would like to contact me, then please feel free to do so at info@argentis-group.com. Argentis Group assists oil and gas companies with operational audits to identify areas to reduce costs, increase revenues and increase the overall asset value of an oil and gas company.