Struggling Canadian oil and gas company Talisman Energy's (NYSE: TLM ) shareholders have every right to complain about the company's lackluster performance.
Since the company announced last year that it was going to restructure itself, in an attempt to return to growth, the share price has gone nowhere but down and, as of yet, Talisman's management has little to show for its restructuring efforts.
However, it is possible that there is still value to be had in struggling Talisman as the company remains a functioning international player in the world of oil and gas.
Still, as Talisman reported a loss for 2013 it is difficult to place a value on the company. Nevertheless, the company's assets still have underlying value, and this figure can be used to figure out whether or not Talisman is attractively priced.
Putting together a valuation
When trying to identify potential E&P plays, I like to use two main valuation methods.
First, the enterprise value-to-reserves ratio, or EV/reserves, which gives an indication of what value the market is placing on each barrel of the company's reserves.
Generally, the EV/reserves figure can be compared to the rest of the industry or the company's close peers to get an indication of whether or not the company is undervalued.
Second, I like to use the PV-10 ratio. This figure helps us understand how much the company's oil reserves will be worth over the life of the project, minus 10% as a discount rate to account for items such as inflation and taxation.
PV-10 attempts to show us the future value of all of the reserves held by the company, net of extraction expenses.
Talisman's estimated proved plus probable oil and gas reserves total 1.64 billion barrels of oil equivalent. In addition Talisman's enterprise