Abstract: Reserve Information--Invaluable Tool of Portfolio Manager

Robert L. Fuchs

The professional investment manager concerned with a portfolio of equities in natural resource companies must utilize reserve information in the analysis of specific companies and in formulating buy/sell decisions. Whereas conventional investment parameters such as earnings growth, return on equity, yield, combined rate of return, book value, economic climate, and market psychology all figure into common-stock valuation, the investor must pay particular attention to a company's reserve position and potential. Proved (measured) reserve data are usually available through public sources and provide a floor value which can be extremely helpful in establishing degree of downside risk. However, significant equity-price appreciation normally will occur on market realization of a impending major increase in proved reserves. Such increase may result from the upgrading of material in the probable and possible categories indicated. More importantly, inferred reserves established by new discoveries ultimately can evolve into increases in proved reserves, with consequent appreciation in net-asset value and future earnings. Finally, exploration holdings with hypothetical and speculative resources represent additional, often unrecognized value areas. Timely geologic input is vital to the natural-resource portfolio manager to recognize hidden reserve and resource values and to take investment action in advance of the inevitable market recognition that accompanies increasing degree of geologic assurance.

AAPG Search and Discovery Article #90968©1977 AAPG-SEPM Annual Convention and Exhibition, Washington, DC