Documente Academic
Documente Profesional
Documente Cultură
Economic Evaluation
Start up Training for
Project Engineers
Contents
A.
B.
C.
Sensitivities
D.
E.
Project Example
F.
2 E&P Exercises
G.
Conclusion
mn EURO
27.7%
20.6
19.8%
13.7
12.0%
6.9
4.2%
0.0
-3.6%
-6.9
-13.7
-11.4%
-20.6
-19.3%
-27.5
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
-27.1%
Differentiation:
f Produced Volume
f Sold Volume
Contents
A.
B.
C.
Sensitivities
D.
E.
Project Example
F.
2 E&P Exercises
G.
Conclusion
5,645
6,830 / (1 + 0,1)
= 6,209
7,513 / (1 + 0,1)
8,264 / (1 + 0,1)
= 6,830
= 7,513
9,091 / (1 + 0,1)
= 8,264
10,000 / (1 + 0,1)
= 9,091
10,000
+0.1)6
1
/(
0
0
,0
0
1
=
***id)
*PV = **FV / (1 +
6 = 5,645
1
7
.7
/1
0
0
,0
0
1
=
n
@10%
* PV
. Present value
** FV
. Future value
Discount rate
Discount rates at E&P:
f Standard rate (WACC)- Percentage rate at which future money is
discounted 10%
(WACC): Weighted-average cost of capital the marginal cost of
funding the next project; this is calculated as an weighted-average
cost of a mixture of equity and debt.
f Hurdle rate the minimum acceptable rate of return on investment
CF n
n
n =1 (1 + i )
N
NPV = CF 0 +
where
(NPV represents present value cash worth in excess of realizing a rate of return
equal to i);
If NPV = 0, the project is marginal, i.e. neither adds or destroyed value.
(the project yields a rate of return equal to i);
If NPV <0, the project is not profitable on a time-adjusted basis;
The higher the NPV, the higher is the value added for the company.
* OMV standard: mid-year discounting
15 |OMV Exploration & Production EC-E, December 30, 2011
Start up training for project engineers_07.ppt
Cash Flow
Year
Discount rate
@ 10%
Option A
Option A
Option B
Option B
Undiscounted
Discounted
Undiscounted
Discounted
1.000
0.909
6,000
5,455
2,000
1,818
0.826
4,000
3,306
2,000
1,653
0.751
2,000
1,503
0.683
2,000
1,366
0.621
2,000
1,242
0.564
2,000
1,129
10,000
8,760
12,000
8,711
Total
In this example, it is preferable to receive 10,000 in 2 years as this has a present value of 8,760 as opposed to the
present value of de 8,711 based on in six payments of 2,000 each.
16 |OMV Exploration & Production EC-E, December 30, 2011
Start up training for project engineers_07.ppt
Normally, when the discount rate (i) increases the NPV decreases.
10,000
9,000
8,711
Option B
8,000
6,651
NPV EUR
7,000
6,000
5,285
5,000
4,336
3,649
4,000
3,135
3,000
2,000
1,000
0
10%
20%
30%
40%
50%
60%
probability of occurrence and the gain and loss that will result
Year
0
1
2
3
4
5
6
7
8
9
10
Total
gain (NPV)
16.66
2.50
+
x
-2.13
15%
2,5
Internal Rate of Return (IRR) is the discount rate for which the Net Present
Value equals 0
Excel formulae:
f IRR () English version
f IKV() German version
Effective rate of interest of the respectively bounded capital
3.80
NPV mn EUR
3.00
2.45
2.00
1.42
1.00
0.63
0.00
0.00
-0.51
-1.00
-0.93
-1.28
-2.00
18%
28%
38%
48%
58%
68%
78%
88%
-1.58
98%
discount rate
0.909
0.826
Annual Cash
Flow
[mn EUR]
-2.50
0.33
0.33
Accumulative
Cash Flow
[mn EUR]
-2.50
-2.17
-1.84
Accumulative
discounted Cash
Flow
[mn EUR]
-2.50
-2.20
-1.93
0.513
0.467
0.33
0.33
-0.19
0.14
-0.89
-0.74
0.29
0.263
0.239
0.33
0.33
0.33
1.79
2.12
2.45
-0.16
-0.07
0.01
0.149
0.33
4.10
0.31
Discount
Factor
@ 10%
(disc.)
Project CF (non-disc.)
4.1
3.8
3.4
3.1
2.8
3
2.5
2.1
mn EURO
1.5
1.1
0.8
1
0.5
0.3
0.3
0.2
0.2
0.2
0.2
0.2
0.1
0.1
0.1
0.1
-0.2
0
-0.5
-0.9
-1
-1.5
-1.6
-1.2
-1.4
-1.2
-1.0
-0.9
-0.7
-0.6
-0.5
0.1
-0.3
0.1
-0.2
0.1
-0.1
0.1
-0.1
0.0
0.1
0.1
0.1
0.1
0.1
0.2
0.1
0.2
0.3
0.1
0.0
-1.8
-2
-2.1
-2.2
-2.4
-2.5
-2.4
-3
2011
2013
2015
2017
2019
2021
2023
2025
2027
2029
2031
CAPEX)
Profitability Index
PV Cash out
PV Cash in
PV Cash out
PV Cash out
NPV
PV of CF
PV of CAPEX
Example:
f Project CAPEX = 100 MM EUR spent over 1 year.
f Operational CF = 20 MM EUR per year over 10 years.
f Discount rate = 10%, CF basis at the end of the year.
f NPV = 20,81 MM EUR, Present Value (PV) of CAPEX = 90,9 MM EUR
f PI = 0,23 which means this project will generate 23 EURO cents per each 1
What is it
Major assessment criterion for
NPV
project economics
Absolute value in monetary
terms of discounted payment
surpluses indicating project
attractiveness
Useful for project rankings
Risk-adjusted (probability-
EMV
IRR
Pay
Back
Period
What it means
Positive NPV project is profitable
Accuracy of probabilities
its probabilities)
Negative EMV project is not profitable
(given its probabilities)
Higher than hurdle rate project is
Not additive
Does not consider (total) investment volume
For project comparisons: prerequisite of
risk exposure
PI
Stumbling blocks
in time
Does not provide information about total
profit of the investment project
Reinvestment premise (cf. NPV)
There is different ways of calculation
(depending on denominator)
Not additive
Does not consider (total) investment volume
Start up training for project engineers_07.ppt
Contents
A.
B.
C.
Sensitivities
D.
E.
Project Example
F.
2 E&P Exercises
G.
Conclusion
C. Sensitivities
C. Sensitivities
C A P EX
O PE X
Pr ice
Q u a nt it y
BA SE CA SE
600
54 9
450
400
38 1
352
33 6
2 91
mn EURO
33 8
200
2 65
200
2 53
2 45
30 1
15 4
15
2 28
191
56
-43
-1 4 2
-2 0 0
-2 4 0
-339
-4 0 0
54 9
450
3 52
2 53
1 09
15 4
1 17
63
81
56
18
44
-28
7
-43
-1 42
-24 0
-33 9
5 0 .0 %
6 0 .0 %
7 0 .0 %
8 0 .0 %
9 0 .0 %
1 0 0 .0 %
110. 0%
% of B as e Cas e
1 2 0 .0 %
1 3 0 .0 %
1 4 0 .0 %
Contents
A.
B.
C.
Sensitivities
D.
E.
Project Example
F.
2 E&P Exercises
G.
Conclusion
output
Contents
A.
B.
C.
Sensitivities
D.
E.
Project Example
F.
2 E&P Exercises
G.
Conclusion
F. 2 E&P Exercises
Team Exercises
f 2 E&P exercises
f Project input
f Making the right decisions
- Output of calculations and graphics
f Change Input variables (scenarios)
- New output of calculations and graphics
f Close loop Learning by doing
f Short presentation of findings
f Presentation of the results and interpretations