SPE Seminar: Introduction to E&P Economics & Commercial - - PowerPoint PPT Presentation

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SPE Seminar: Introduction to E&P Economics & Commercial - - PowerPoint PPT Presentation

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SPE Seminar: Introduction to E&P Economics & Commercial November 17 th , 2016 Lam Verre Principal A&A Alaric & Associates Confidentiality The information contained in this document is confidential and was created by Alaric

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SPE Seminar: Introduction to E&P Economics & Commercial

November 17th, 2016 Lamé Verre Principal A&A

Alaric & Associates

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The information contained in this document is confidential and was created by Alaric & Associates for use by the Society of Petroleum Engineers only. Recipients of this document are required to treat the information contained in the document as sensitive, and may not share the information with any third parties without the written consent of Alaric & Associates. Please handle the document and the information contained herein with care. For authorized circulation, the document may

  • nly be circulated as a PDF to eliminate unauthorized changes to information contained herein.

Please report any unauthorized use, misuse or plagiarism to the management of Alaric & Associates lverre@alaricandassociates.com. PROPERTY OF: Alaric & Associates Unit 2 5 Baldwin Street London EC1V 9NU Alaric & Associates

Confidentiality

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Alaric & Associates

Who Are We?

§ Alaric & Associates is an independent oil and gas consultancy firm, focused on serving clients in the upstream and midstream sectors. § We are a professional service firm that provides a broad spectrum of professional expertise, including: § Strategy Advisory & Professional Support on

q Business Development q Market Entry Strategies.

§ Economic Evaluation Services § Corporate Finance Advisory § We are headquartered in London (UK), with growing presence in Asia and Africa.

We work with you to make value added decisions.

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Alaric & Associates

Outline

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  • Why is it necessary?

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  • When is it required?

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  • Who does it?

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  • What inputs are required?

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  • How is it performed?

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  • And so what?

Overview of E&P Economics & Commercial

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Alaric & Associates

Why is it Necessary?

§ To assess the inherent E&P project and decision risks § To evaluate investment returns § To make informed decisions on how to efficiently allocate capital

Exploration Acreage Discovery under Appraisal Field in Development Field Recently

  • n

Stream Mature Field Decommissioning

Higher Risk Lower Risk

These risks are dependent on where we are within the E&P lifecycle

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Alaric & Associates

When is it Required?

Field/Asset Lifecycle

§ At end of economic life safely and cleanly plug and abandon wells § Decommission and dispose of facilities and pipelines § Produce § Process § Transport § Sell Exploration Appraisal Development Operation Enhanced Production Decommission/ Abandonment

  • Further seismic

surveys

  • Appraisal drilling
  • Studies
  • Geological

modeling

  • Initial economic

appraisal

  • Concept selection
  • Detailed

economic appraisal

  • Detailed

Engineering

  • Financing
  • Development

drilling

  • Facilities
  • Pipelines

§ Maximize recovery § Extend field life using Enhanced Oil Recovery (EOR) techniques § Acquiring rights § Geological, § Gravimetric Magnetic, § Seismic surveys § Exploration Drilling

At every point during the E&P Asset Lifecycle to ensure value creation and delivery

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Who Does It?

An Integrated Workflow & Team is highly recommended

Subsurface (G&G, Reservoir Engineers)

Engineering Economics & Commercial

Updated Assumptions

Approvals, Asset Management, Planning/Budget, Decision Making

STOIIP/GIIP/Production Profiles § Calculate MCFS (min com/eco field size) based on current eco. ass. § Production Profiles above MCFS (P10, P50 & P90) § # Wells (E, A & P) § HC mix § Product data (shrink, yield etc.) § Peak rates Development solutions and Cost estimates § Wells (Number & Location) § Facilities (topside & subsea) § Pipelines § Product-2-market solutions § CAPEX Schedule § etc. Discounted Cash Flow Analysis § NPV & EMV § IRR, PIR, MFE, Payback § Sensitivity Analysis § Graphing § ECF § Tariffs Expense (Transport, extraction and production) § Tariff income § Other income § etc.

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What Inputs are Required?

Cost Profiles Economic Model Cash Flows Commercial Agreements & Fiscal Regime Sensitivity Analysis Hydrocarbon Prices Key Performance Indicators

Inputs Outputs

Development Concept Production Profiles

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How is it Performed?...1/2

Full Cycle

  • All investments including

sunk cost

  • Full cycle measures better

the overall investment efficiency Point Forward

  • Just looking at future cash

flows

  • Most investment decisions

are made on point forward basis Incremental

  • Sometimes projects cannot

be evaluated on a stand- alone basis

  • Key reasons include: Tax

calculation, Project Timing, Size, part of exiting project

By combining all the inputs in an economic model Discounted Cash Flow Analysis

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How is it Performed?...2/2

Full Cycle versus FID Point Forward

Full Cycle from the beginning

Exploration & Appraisal Development Capex Drilling Opex Abandonment/ Decommissioning Base Revenues

Incremental

Incremental Revenues (Tertiary Recovery)

Point Forward from Final Investment Decision (FID)

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And So What?...1/2

Cost Categories and Unit costs - show efficiency in £/bbl.

Exploration Appraisal Development Operation Enhanced Production

Decommission /Abandonment

Finding/ Discovery Costs Finding & Development (F&D) Costs Capex/bbl. Lifting Costs Opex/bbl.

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And So What?...2/2

Tracking Performance We bother because all E&P decisions and agreements have to make financial and economical business sense

Key Performance Indicators § NPV = Net Present Value § IRR = Internal Rate of Return § PIR = Profit Investment Ratio § MFE = Maximum Financial Exposure § Payback § Sensitivity Analysis § Project Ranking § Portfolio Analysis

£

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Who’s Cash Flows?

Typical Cash Flow Curve The Project, The Company, The Lender, The Shareholder?

  • 4,000
  • 2,000
  • 2,000

4,000 6,000 8,000 10,000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 USD MM Net Revenues After-Tax Cashflow Cum Cashflow Maximum Financial Exposure Investment Phase Payback Decommissioning

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Sensitivity Analysis

All Parameters & Variables should always be stress tested

  • 1000
  • 500

500 1000 1500 2000 2500 3000 3500 4000 Opex (+/- 20%) Capex (+/- 20%) Gas Price (+/- $1.00/Mscf) Oil Price ($45 / $75) Discount Rate (+/- 2%) Production (Low/High) Base Case = NPV10

Example Tornado Chart

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Alaric & Associates

Thanks for listening.

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PROPERTY OF: Alaric & Associates Unit 2 5 Baldwin Street London EC1V 9NU

www.alaricandassociates.com

Alaric & Associates 16