Why Your Traditional Economic Analysis Isn’t Giving You the Whole Picture04/01/2015
What information you should be factoring in to your hold or sell decisions
Your classic cash flow analysis simply isn’t enough.
A market downturn can be an event that sinks your company, it can be something you manage to suffer through, or it can be something you leverage to your advantage.
You need to go beyond economic evaluation as your cash flows need context to be truly understood.
Take, for instance, this asset with a marginal cash flow position:
Do we hold on to it or sell it off? But if we take a look at its reserves:
We really haven’t fully developed this reservoir like we could. Maybe we should hold on to it, or better yet, develop it further.
The bottom line is you can increase cash flow without gutting your most valuable asset: your reserves. The goal is to create value, which generally means looking at your company’s assets from multiple angles and making the appropriate call after thorough analysis. The companies that can execute on overall value, not just cash flow, will hold advantageous positions when the market turns.
Clint Delisle recently went into greater detail via webinar. If you didn’t have a chance to catch it I highly recommend you check out the recording. It’s a 20 minute presentation followed by some great Q&A at the end.
About the Author
Clint Delisle, P.Eng, is a self-described “reserves nerd” and all one has to do is talk shop over a few beers with him to see just how true that is. With degrees in Engineering and Computer Science combined with decades of experience in reserves software on five continents, Clint is uniquely qualified to tackle today’s reserves management challenges. When he is not crushing reserves challenges Clint has a personal goal of keeping his 1979 Buick outperforming modern Ferraris.