Valuation of integrated oil & gas companies: A comparative analysis of methodologies and empirical practices

Irakli Menabde

Student thesis: Master thesis

Abstract

The paper examines a number of empirically utilised and academically established valuation methodologies in order to value Integrated Oil & Gas Company’s common stock. By applying and comparing DCF, SOP and Real Options based valuation methodologies with the aims of establishing both, an absolute share price value and relative value for the sample representatives of for Exxon Mobil Corp and BP Plc, the paper highlights key input parameters for each methodology and discusses the key differences in the outputs of the models. The study finds that the market relies on the Discounted Cash flow Valuation methodology and that the Real Option based valuation attributes significantly higher value to the companies, while the Sum Of Parts valuation demonstrates significant discounting of the value in upstream assets and a rather large holding discount as measured by stand alone market peers. The paper then goes further by providing a historical twenty year back test of the global Integrated Oil & Gas stock portfolio based on publicly available company financial factors, and provides a stock selection model for the custom universe in the long/short, market neutral setting. Lastly, a strategic perspective for key stakeholders is provided based on the findings from the comparison of valuation methodologies, highlighting their strategic implications for the practicing investors, corporate leadership and regulatory entities.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2008
Number of pages87