Evaluation of oil & gas propertys

Discussion at the E&P Strategy and

Portfolio Management Forum,
th
London 4 Feb 2015
CAN WE MONETIZE ALL VALUE PROPOSITIONS
AVAILABLE IN THE VALUE CHAIN?

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Valuation Methodologies
Comps Based
Valuation
Multiples Based
Valuation

(Sum-of-the-Parts) Valuation multiples of such companies are applied to earnings metrics of

our target company, e.g. sales, EBITDA to derive valuation

Precedent
Transactions

Cash Flow
Based Valuation

Based on relative valuations of public companies that are most

comparable to our target

Discounted Cash
Flow

Leveraged Buy
Out

Similar to comps based valuation, multiples are applied to earnings

metrics based on analysis of historical transactions
Valuation is based on cash flows attributable to the firm, irrespective of
capital structure
Value equal to the sum of the present values of such cash flows
Valuation based on the maximum amount a potential private equity
investor can afford to pay for the business to achieve a target return
Has become an increasingly important metric in recent years

Basis for Variation

1.

There can be very wide differences between the results of these different valuation
methodologies. the reasons for these variations can relate to:
quality of reserves (ie. density, sulphur content, water content, etc.)
operating costs
remaining exploration & development costs
distance to market
cost of construction of required infrastructure
time before production can be brought to market

2.

Are the we leaving value on the table when we assess the true potential of an E&P
project?

3.

Is there a different approach wherein we value an E&P project in its entirety so as to

monetize the value available at each step of the value chain?

Value gaps along the chain

$/bcf
$/bcf

$/mcfd

$/boe

$/bbl

$/bbl

$/ltr

IOC vs IPM?

Can an Integrated Oil Company approach be used but modified in the form of an
Independent Project Management plan?

Rather than have one company expend energies across functions or even have one company
outsource individual functions to external contractors, would greater value be achieved if
different companies, come together under one single PMO and each is remunerated on the
basis of its value-add proposition
o

Share risk share reward

No contractor/ sub-contractor approach

Act under a single PMO, with decisions guided solely project considerations

Case Study Uganda Blocks 1, 2 & 3A

Tullow was a 50% partner with Heritage Oil in Blocks 1 & 3A and had
100% interest in Block 2 in the Lake Albert Basin in Uganda.
Tullow had entered into a Sale and Purchase agreement (SPA) with
Heritage to purchase its entire interest in Block 1 and Block 3A. The
terms of the transaction included a consideration of US $1.35 billion
cash and a further contingent, deferred consideration of up to US
$150 million cash or an interest in a mutually agreed producing oil
field independently valued at a similar amount.
Thereafter Tullow put up, in a limited bid process, 50% of the 3
blocks 1, 2 & 3A for farm out. In this bid that closed on 19th January
2010, the bids submitted by Total and CNOOC were found to be
acceptable to Tullow, at a price of US$ 2.5 Bn for the 50% stake.

Lake Albert monetisation challenges

Issues

Mitigation

Uganda is landlocked and has no existing oil

infrastructure.

Waxy crude (pour point 40 deg C) would

require a heated pipeline for transportation

The blocks are in marshy/ difficult to drill

areas.

Demand for finished petroleum products is

limited (less than expected production)

Transport crude/ product to Kenya/ Tanzania

by pipeline
Refining options/ technology to create value.
Experienced oil field services operator to
operate in extreme conditions.
Work on a skid mounted refiner while
gradually scaling up operations as production
ramps up
Delivery product pipelines to export
terminals (Kenya/ Tanzania)

Latest situation (rigzone.com Jan 2014)

Uganda has completed negotiations with Tullow and partners and expects to sign a MoU
shortly.

Commercial production has been delayed and is not expected until 2016 (2017)

As per energy minister Irene Muloni developing Uganda's oil fields and building the required
infrastructure would cost between $15 billion and $22 billion

Uganda has revised upwards its oil reserves by 85 percent to 6.5 billion barrels after an
appraisal that also showed commercial deposits of natural gas, officials said.

Plans to construct a medium scale domestic refinery and a pipeline connecting to Kenya's
newly-built Indian Ocean port of Lamu to export excess crude.

The refinery is to start with a small processing capacity of 30,000 barrels per day but is
expected to be scaled up and capped at 60,000 barrels.

The Economics of it all

Green Field refinery options

Description

US$ mm

A reasonably complex medium investment Refinery Atmospheric Distillation Unit ( 30,000 bpd ) 35
would be required in order to align the Product yield Residue Based FCC Unit ( 18000 bpd )
100.0
to the market demand.
including SRU
A relatively small (30-40 Kbpd) but complex Refinery Catalytic Reforming Unit including Naphtha
design is likely to be most economically viable
provided the prices are subjected to competitive Hydro-treating (6000 bpd )
market forces.
Total ( Ex load port )

80.0

215

Strong demand growth for white Products provides an Ocean Freight, Inland Transportation, Taxes, 80
opportunity for potential future increases in Refining Catalyst/Chemicals, Installation and
capacity
Fuel Specifications in Uganda:
Diesel: Sulphur content <5000ppm
Gasoline: Sulphur content 500-1000ppm
Source: WoodMac, KBC, CITAC, HART

Commissioning expenses ( ~ 50% of Skid

Cost )
Total Installed Cost

295

The Economics of it all

Namely three Pipeline routes were identified to export oil
from Lake Albert in Uganda

Feeder Lines

K1

K2

T1

The oil is waxy with a high pour point & requires heating
for transporting through a Pipeline
Feeder Lines: Connects the Crude fields around Lake
Albert to the Head Pump Station
K1 runs parallel to the railway line and existing pipeline
corridor.
K2 is more direct and follows a lower elevation through
the eastern rift valley and merges with Ka 1 beyond
Nairobi.
T1 runs from Hoima to Dar-es-Salaam and is longer than
K pipelines since it requires going around Lake Victoria.

The Economics of it all

Length Km

Pipeline Diameter (Inches)

Pumping Stations

100mbd

200mbd

300mbd

100mbd

200mbd

300mbd

K1

1247

18

22

26

K2

1229

18

22

24

1586

18

22

24

Capex Cost Estimate ($Mn USD)

US$mm

100mbd

200mbd

300mbd

Feeder Lines

150

428

495

K1

2530

3058

3423

K2

2371

2960

3300

3007

3666

3997