Introduction to Oil Company Financial Analysis

This is a thorough and surprisingly readable book. The sections are current, well-written and not overly dry or technical. I, personally, was looking for a cross-section of financial ratios that would show a spectrum of operations from poor to well-run. There were several "case studies" which were well-done, but a little narrow for my purposes.There is, however, an extensive treatment of oil company Merger & Acquisition financial models and price valuations which I've never seen anywhere, so the book was well worth the price for that section alone. It also included - among the "case studies" - refinery operations of varying sizes and complexities. The "case studies" were actual named refinery operations with "live" financials from 10-K reports, so the numbers were accurate.Overall, a very good value for the money.

As stated

useful

Just what I needed

The old warning Buyer Beware could not have been more apt for this book. Discussion of oil company analysis is limited to about two chapters - chapters 7 and 8. Beyond that this book is more of a primer on valuation in general with discussion on things like CAPM, Gordon growth model, Dow Theory, Random Walk, Efficient Markets etc. Then there is a liberal discussion on M&A Law in the US. In my own mind, central to oil company analysis is the valuation of reserves - a topic that requires a full book. This book devotes exactly 22 pages to this topic. Even here, the book is full of excel spreadsheet snapshots and there is no discussion of how certain items were derived or calculated and it is left to the reader to calculate. When dealing with a complicated issue and especially when one is paying good money for a book, one would expect some hand-holding. There is no discussion on the specific components of Finding and Development (F&D) costs, how to smooth the lumpiness of annual F&D costs, and how to derive F&D costs from company filings. There is no discussion on issues such as "risking" reserves and exactly what the term means and how one goes about attributing value to resource potential. On the refining side, there is no discussion on refining margins and their drivers. The only thing of interest on the refining side is a discussion of the Nelson complexity index. Other than that the book is pretty much useless. If you think you can start analyzing oil and gas companies using this book, you are in for a rude shock. If you are looking to pick up on valuation concepts, then this book may be alright but there are clearly much better books for this out there. The authors are probably under the impression that quoting examples exclusively from oil and gas companies makes a book an authoritative treatise on oil and gas companies. This, as we all know, is wrong-headed. Barring chapters 7 and 8, you could easily substitute examples from technology companies and call this "Technology Company Financial Analysis". My advice...Don't Buy.

I bought this book because I was interested in investing in ConocoPhillips when the prices of crude oil started to drop in 2008. This book will not teach you everything about the financial analysis of oil companies, but it will teach you enough to understand how oil companies work. And if you are interested in investing in oil companies, you need to understand how these businesses work. There are different ways to value companies, and I found it very helpful that the authors explain how oil companies can be valued by looking at its assets such as reserves, pipelines, tankers, refineries, and marketing outlets.- Mariusz Skonieczny, author of Why Are We So Clueless about the Stock Market? Learn how to invest your money, how to pick stocks, and how to make money in the stock market

As a professor of economics and project finance I find that this book is a valuable specialized book on the field of analysis and valuation of oil companies. Check the MacKinsey bible on valuation and verify that Mr Johnston's book goes as far as it is possible without making it unreadable for the average reader interested in this subject. It is obvious that the type of very specialized information that the harsh reviewer above asked for would not be included in this type of book as its audience would be very limited.