What is "Adjusted Cash Flow from Operations"

[dan_s]

Discretionary cash flow or "Adjusted Cash Flow" is calculated as net cash provided by operating activities excluding changes in current assets and current liabilities, and exploration expense (net of stock-based compensation expense). Exploration expense (net of stock-based compensation expense) is added back in the calculation because, for peer comparison purposes, this number is included in the company's total capital spend. The Company believes this measure is important to investors because it provides useful additional information to investors for analysis of the Company's ability to generate cash to fund exploration and development, and to service indebtedness. In addition, management believes that discretionary cash flow is widely used by professional research analysts and others in the valuation, comparison, and investment recommendations of upstream oil and gas companies.

Free cash flow is calculated as Discretionary cash flow (defined above) less Total capital spend (defined above). The Company believes that this is an important measure because it represents the cash from operations, in excess of capital expenditures, available to operate the Company and fund discretionary obligations. The "Wall Street Gang" is very focused on Free Cash Flow because they want to see how much money is available for debt repayment, stock buybacks, dividends, etc. Upstream Oil & Gas Companies that are able to generate Free Cash Flow and continue to increase production and proven reserves should be trading for much higher multiples than companies that rely debt or equity offerings to fund growth.