skills/full-company-analysis/references/modules/M084-oil-and-gas-e-p-analyst-playbook.md

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<!-- Module: 084 | Title: Oil and Gas E&P Analyst Playbook -->

## PART XV - SECTOR PLAYBOOKS | MODULE 084

# Oil and Gas E&P Analyst Playbook

> Mission. Build a sector-specific research system for Oil and Gas E&P that converts operating data into financial outcomes, highlights the accounting areas most likely to distort comparability, and selects valuation methods that reflect the sector's economics.

## Economic engine and binding constraints

Model production by commodity, decline curves, realized price, basis/hedges, LOE, gathering, maintenance versus growth capex, inventory depth, breakevens, royalty/tax, and balance sheet. Use strip and multiple commodity scenarios rather than one price deck.

## Primary KPI stack

| KPI | Construction / analyst control |
| --- | --- |
| production | Oil, gas, NGL, mineral, or other physical output produced during the period in standardized units, net or gross according to stated ownership convention. Validation: Tie physical/operating units to company disclosures or source-system data; reconcile beginning/ending populations where applicable and test scope, ownership, and period consistency. |
| oil/gas/NGL mix | Percentage of total production or revenue represented by oil, natural gas, and NGLs using consistent energy or volume units. Validation: Recalculate from same-scope numerator and denominator; confirm period, units, cohort/geography, and issuer definition; reconcile material differences to filings or operating data. |
| realized price | Revenue for the commodity/product divided by sales volume after quality/location differentials and before or after hedges as explicitly stated. Validation: Recalculate price/cost from underlying dollars and physical units; test mix, rebates, FX, timing, and unit-definition effects; reconcile to reported revenue or expense. |
| hedges | Volume, price, tenor, and fair-value/cash-settlement profile of derivative positions relative to forecast production or commodity exposure. Validation: Recalculate independently from cited source data; verify definition, period, units, scope, signs, and any reconciliation to reported financial or operating totals. |
| LOE | Lease operating expense divided by production volume, typically $/boe, excluding or separately stating production taxes and transportation. Validation: Recalculate independently from cited source data; verify definition, period, units, scope, signs, and any reconciliation to reported financial or operating totals. |
| capex | Maintenance capex is the spending required to preserve current earning power, estimated from asset replacement and operating evidence rather than management labels alone |
| inventory locations | Count and working-interest share of economic drilling locations meeting defined return/cost thresholds at stated commodity prices. Validation: Recalculate independently from cited source data; verify definition, period, units, scope, signs, and any reconciliation to reported financial or operating totals. |
| decline rate | Percentage reduction in production from an existing well/cohort over a defined period, separated into initial and terminal decline assumptions. Validation: Recalculate from same-scope numerator and denominator; confirm period, units, cohort/geography, and issuer definition; reconcile material differences to filings or operating data. |



## Sector-specific accounting and comparability traps

- Successful-efforts/full-cost: reconcile issuer treatment with peer treatment and quantify the effect on reported growth, margin, cash flow, capital, or valuation before comparing outputs.

- Dd&a: reconcile issuer treatment with peer treatment and quantify the effect on reported growth, margin, cash flow, capital, or valuation before comparing outputs.

- Asset retirement obligations: reconcile issuer treatment with peer treatment and quantify the effect on reported growth, margin, cash flow, capital, or valuation before comparing outputs.

- Hedge accounting: reconcile issuer treatment with peer treatment and quantify the effect on reported growth, margin, cash flow, capital, or valuation before comparing outputs.

- Reserve revisions: reconcile issuer treatment with peer treatment and quantify the effect on reported growth, margin, cash flow, capital, or valuation before comparing outputs.

## Valuation frameworks

- EV/EBITDAX: enterprise value divided by EBITDA before exploration expense; normalize commodity prices, hedges, reserve replacement, decline, and sustaining drilling capital.

- FCF yield: normalized levered free cash flow divided by equity value; reconcile SBC, working capital, maintenance capex, taxes, and cycle before comparing companies.

- NAV: mark identifiable assets and liabilities to economic value, subtract debt and other claims, and divide residual value by diluted shares; document commodity/discount-rate assumptions.

- PDP/PUD valuation: DCF proved developed producing reserves separately from undeveloped inventory using decline curves, type curves, commodity prices, costs, taxes, timing, and risk haircuts.

## Sector diligence questions

- What is the most important leading indicator for Oil and Gas E&P, and how many months does it lead reported revenue or cash flow?

## Sector stress and falsification

- Stress production and oil/gas/NGL mix together in the direction most likely to break the equity story; flow the result through working capital, capex, liquidity, financing, dilution, and valuation.

- Explicitly test successful-efforts/full-cost. Determine whether it can make the reported sector comparison look better or worse without equivalent economic change.

## 99-point standalone execution extension

### Model architecture and forecast chain

Model production by commodity, decline curves, realized price, differentials, hedges, lifting cost, royalties, drilling/completion cost, inventory depth, and maintenance capital.

### Leading-indicator dashboard

Track rigs, frac spreads, permits, basin takeaway, storage, commodity curves, service costs, well productivity, decline, and operator capex.

### Primary-source map

SEC filings and reserve disclosures; EIA production/inventory/price data; state oil-and-gas regulators; Baker Hughes rig counts; midstream constraints; royalty/acreage records where public.

### Accounting normalization test

Reserve revisions, successful-efforts/full-cost accounting, impairments, derivative marks, asset retirement obligations, and acquisition adjustments matter.

### Valuation implementation

Use NAV by acreage/project, mid-cycle FCF, EV/EBITDA only with maintenance-capex context, and commodity sensitivities.

### Worked numerical mini-case

> Illustrative well economics.

A well costs $9m and produces 650 mboe over its economic life. At $52/boe realized net price and $17/boe cash operating/tax cost, undiscounted field margin is roughly $22.75m before decline timing and corporate costs.

Run price, EUR, basis differential and service-cost sensitivities and reconcile reserve replacement to sustaining capital.

### Monitoring and falsification cadence

Breaks include lower resource productivity, cost inflation, basis widening, regulatory limits, weak balance sheet, or inventory exhaustion.

At every quarterly update, rebuild the driver bridge from operating units to revenue, margin, cash flow and valuation; compare leading indicators with the prior forecast; record definition changes; and precommit the threshold that would trigger a thesis reset rather than a cosmetic estimate change.

## Sector exit standard

The Oil and Gas E&P work is complete only when the analyst can explain the business in its native operating units, reproduce the KPI history, identify the binding growth constraint and marginal price setter, normalize sector-specific accounting, quantify a coherent adverse case, and translate the current market price into the operating expectations that must be met or exceeded.