oil/gas analyze financial information

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Oil and Gas Accounting

Group Project ACCT6375 Fall 2018

The specific purposes of this project are:

1. Apply to actual companies the basic knowledge and analytical techniques learned from this

course and ACCT6351.

2. Prepare vertical common-size financial statements, horizontal common-size financial

statements, comparative analysis, and various profitability and risk ratios.

3. Analyze the financial information.

4. Provide suggestions to improve its financial performance.

You will select a firm (in the oil & gas industry) to analyze its most recent three year annual

financial statements. Be sure that the selected firm is classified as an oil & gas manufacturing

company so you could have the information needed for analysis. Make sure you can have the

financial statements prior to your selection. You may download the 10-K from the company’s

website or www.sec.gov (i.e., EDGAR online), if available.

(Note: Companies primarily providing services to oil & gas firms may not qualify an oil &

gas manufacturing company. Otherwise, you may not be able to compute the energy

specific ratios as described below.)

Guidance

The required tasks are detailed below:

(1) Common-Size analysis. Prepare vertical (and horizontal) common-size balance sheets and

income statements for the selected company. Note: Compute for the most recent THREE

years.

(2) Comparative analysis. Prepare year-to-year changes on income statement and balance

sheet (in percentage) for the company. You should compute for the most recent THREE

years, too.

(3) Prepare ratio analysis (for the same THREE year time period) for the company. At least,

you should include the following ratios in your computations. You can find most of the

ratios in chapter 16 of our textbook.

i. Liquidity Ratios

1. Current ratio

2. Quick ratio

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3. Working capital (in amount)

ii. Profitability Ratios

4. Net income to sales ratio

5. Return on assets ratio

6. Return on equity ratio

iii. Financial strength Ratios

7. Times interest earned ratio

8. Cash flow from operations to sales ratio

9. Long-term debt to equity ratio

10. Earnings before interest, taxes, depreciation and amortization (EBITDA) (in amount)

iv. Dividends Ratios

11. Dividend yield ratio

12. Dividend payout ratio

v. Valuation Ratios

13. Price/Earnings ratio

14. Price to cash flow ratio

15. Cash flow per share ratio

16. Price to book value ratio

vi. Energy Specific Ratios

17. Reserves replacement ratios

18. Reserve life ratio

19. Net to gross wells ratio

20. Average reserves per well ratio

21. Average daily production per well ratio

22. Finding cost ratio per BOE ratio (Note: Select one formula, but be consistent.)

23. DD&A per BOE ratio

24. Value of proved reserve additions per BOE ratio (Note: Select one formula, but be

consistent.)

(4) Comment on the analytical results. Your comments should concentrate on the trends of

the company’s financial performance. You should interpret the numbers and make

suggestions as to why the ratio of the company is high or low.

(5) Write a summary of the financial performance of the firm, as well as a recommendation section where you provide suggestions for ways to improve financial performance of the

firm. For example, if a ratio is low for a particular reason, what are some ways the

company may correct that in the future? Your conclusions should be based upon, and

specifically reference, the analyses prepared in this report.

Report Format Requirements:

A. Report body requirements:

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1. Cover page. List the title of the project, your names, and semester/year.

2. Abstract or Executive Summary. This is a separate page. It should cover the purpose of the project, the major findings, and the conclusions/recommendations, in summary form.

3. Table of Contents.

4. Main body. Use the following sequence for report content: a. Introduction to the selected company and to the purpose of the report b. Analytical section. This should include all your numerical analyses. This is where

you will discuss the results of, comments on, and conclusions about the vertical

and horizontal common-size statements and the ratio analyses for the company.

c. Interpret the financial numbers. (You may combine b and c if you wish, as long as both are well covered.)

d. Conclusions and recommendations for improvement.

5. References. List all major reference sources.

6. Appendices. Include tables and graphs of your numerical analyses. For reference convenience, assign a title to each separate item, such as Table 1, Exhibit 1, etc.

B. Typesetting requirements:

1. Use size 12 font. Times New Roman is preferred. 2. Double space between lines. 3. One inch on all sides. 4. Do not right justify text. Use left justify. 5. Page length: at least 16 pages, including appendix, tables etc. 6. The submitted work should be in ONE file with a word or pdf format. An Excel

spreadsheet file is NOT acceptable.

7. Submission by one group member is adequate.

Plagiarism

Plagiarism will not be tolerated. Evidence of plagiarism will result in a grade of “F” to the

course and be subject to appropriate disciplines.

NOTES:

 Using the annual reports is perhaps a bit clearer. The GAAP statements are clearly

presented there, and there is not nearly so much data as on the 10ks. You may, however,

use either or both.

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 Be sure that you use the most recent numbers reported for each year. (e.g., if the latest

annual report has 18, 17 and 16, use that 17 and 16 data, as the numbers may have been

revised from the original 17 and 16 reports.)

 A portion of your grade will be assessed based on the overall report quality, clarity,

format, and cohesiveness.

 A FREE-RIDER in the group will not be tolerated. However, to report an alleged free-

rider, you should send me a formal written complaint. You should carefully manage your

group over the semester to ensure that no teammate will take the chance of turning into a

free-rider. Try to contact/manage your teammates frequently and inform me if any

member is not willing to participate in the group work; so we can redress this issue ASAP.

A free-rider will receive his/her group project grades solely based on what he/she has

contributed to the project. If there is a free-rider in your group or a member drops the

class, the rest of the group members are still expected to submit a complete paper.