When appraising oil and gas refineries, look for these primary valuation drivers: revenue, plant capacity, utilization percentage, gross refining per barrel, operating costs, depreciation and amortization, capital expenditures (and cost of capital), and the discount rate, say Siby V. Abraham and Jeffrey W. Kennedy. The two speakers, from Deloitte Financial Advisory Services, were presenters at the first annual Energy Valuation Seminar, hosted last week by the Houston ASA and chapter president Tim Stuhlreyer of Convergent Capital Appraisals.

“There’s a lot of work for all of us in the coming couple of years,” Kennedy added, particularly given industry and economic factors such as consolidation, a shift to independents, regulatory oversight, and liability risks. Further, for valuations within the oilfield services industry (and in light of recent industry events), analysts might consider an upside risk premium adjustment to cover any potential liability risk. But they should also ask themselves: has the market already adjusted for the risk?

For a complete reference library, check out these “best practices” resources for valuing oil and gas reserves, suggested by presenter Allen C. Barron (Ralph E. Davis Associates) and supplemented by our own research:

• “Valuing Oil & Gas Assets in the Courtroom,” by Rhett Campbell, Thomson & Knight, LLP (2002).

• “Which Fair-Market-Value Method Should You Use?” by Forrest A. Garb, Journal of Petroleum Technology (Jan. 1990); available for purchase from OnePetro. (But see Discussion of ‘Which Fair Market Value Method Should You Use?’ at RefDoc.fr.)

• Series of Recommended Evaluation Practices by the Society of Petroleum Engineers (SPEE)(2002), featuring Inclusion of Hedging Positions in Reserve Reports, Discounting Cash Flows, Reporting Multiple Rates of Return, and Calculating Internal Rates of Return. See also: “Perspectives on the Fair Market Value of Oil and Gas Interests,” Monograph 2 (2002), and “Guidelines for the Practical Evaluation of Undeveloped Reserves in Resource Plays,” Monograph 3 (2011), both available for purchase at SPEE.

• Also available from SPEE: 2011 Survey of Parameters Used in Property Evaluation.

• SEC Compliance and Disclosure Interpretations: Oil and Gas Rules (Regulation S-X), last updated Oct. 2009; see also “Modernization of Oil and Gas Reporting Rules,” Federal Register (Jan. 14, 2009).