E&P Projects :OVL’s Quest for Equity Oil and Valuation Issues

UPES, Dehradun-National Conference on Project Finance Management for Energy Sector, April 2010

Ajay Kumar V.

ONGC Videsh Limited16th April 2010

E&P Projects :OVL’s Quest for Equity Oil and Valuation Issues


• OVL’s Vision and Mission• The OVL story• E&P Projects• E&P asset acquisition• Valuation issues• Summary

Presentation Sequence


Vision“To be a world class E&P company providing security oil to the country”.

Mission “ By 2025 contribute 60 MMTPA of Equity Oil & Gas”

OVL’s Vision and Mission


OVL Scouts for E&P Opportunities

•Iran ………….Nationalised

•Iraq……….....Contract Ended

ONGC/OVL Provide Services

•Tanzania……Geological Studies

•Abu Dhabi.....Geological Studies

•Iraq…………..Reservoir Studies

•Sri Lanka…..Prospects Evaluation

•Malaysia……Geohistoric Studies

•Thailand……Geological Studies

•Bhutan……...Exploration

Exploration Attempts

•Vietnam …….Exploration

•Egypt………..Exploration

•Tunisia.……..Exploration

•Yemen…….…Exploration

PATH FINDERS

1970 1980 1990 2000

OVL’s Growth Trend

•Producing Assets 9

•Oil & Gas Projects 39

• Countries 15

•Production 8.8 MMT

•Reserves 406 MMT

•Discoveries 6

•Exploration 23

•Other Project 1

BEST FOOT AHEAD

2005

SCHEMATIC (not to Scale)

2010

Moving Forward

TO

WHERE ?


OVL’s International holdings

International Presence

* 39th project is Sudan’s 741 km long completed Pipeline

39* Projects in 15 Countries 23 Exploration 6 Discovered 9 Producing

Venezuela 1

Cuba 2

Colombia 5 1

Brazil 4 1

Libya 3

Nigeria 2

Nigeria J DZ 1

Sudan 2

Egypt 2

2 Russia

2 3 Myanmar

1 2 Vietnam

1 Iran

1 Iraq

1 1 Syria

OVL’s global foot print


Producing Assets (9)

Vietnam; Block 6.1 (45%)Producing Gas @ 14.6 MMSCMD

Sudan; GNOP (25%)Producing oil @ 158 KBPD

Russia; Sakhalin-I (20%)Producing oil @ 152 KBPDProducing gas @ 5.93 MMSCMD

Syria; Al Furat (13.48%)Producing oil @ 102 KBPD

Sudan; Block 5A (24.125%)Producing oil @ 16KBPD

Colombia (28.2%)Producing Oil @ 26KBPD

Venezuela; San Cristobal (40%) Producing Oil @ 33KBPD

Russia; Imperial (100%)Producing oil @ 15900 BPD

Brazil BC-10 (15%) Producing Oil From 12th July’2009 82KBPD


Assets with Discoveries & Appraisal (6)

Egypt; Block 6 (OVL70 %)NEMED 33%Exploration & Appraisal

Syria; Block 24(60 %)Exploration & Appraisal

Myanmar; Block AI & A3 (OVL20%)Under AppraisalGas discovery announced in Jan 2004

Iran; Farsi Offshore (OVL 40%; IOC 40%; OIL 20%)


Assets under Exploration (23)Iraq; Block 8 (OVL 100%)

Cuba; 2 Blocks as operator6 Blocks as Partner (OVL)

Nigeria JDZ ; 1 Block (OVL)Nigeria ; 2 Blocks OMEL

Libya; NC 189 (OVL49%)Bl 81-I (OVL 100%)B 43 (OVL 100%)

Vietnam; Block 127, 128 (OVL 100 %)

Myanmar; Block AD 2,3 & 9 (OVL 100 %)

Colombia CPO-5 , SSJN-7RC 8 (40%), RC 9 & RC 10 (50%)

Brazil; BM-ES-42, BM-S-73BM-BAR-1, BM-SEAL-4


OVL’s : Reserve Growth

What OVL holds today


FY '03 FY '04 FY '05 FY '06 FY '07 FY '08 FY '09

0.18

3.353.71 4.58

5.80 6.84 6.56

0.07

0.521.35

1.76

2.151.96 2.22Oil (MMT)

Gas (MMTOE)

Oil Domestic

Gas Domestic

Total Domestic

Overseas Production

2002-03 33 31.4 64.4 0.252003-04 33.4 32 65.3 3.872004-05 34 31.8 65.7 5.062005-06 32.2 32.2 64.4 6.342006-07 34 31.7 65.7 7.952007-08 34.1 32.4 66.5 8.82008-09 33.5 32.8 66.3 8.78

OVL’s Oil & Gas Production

13 % of Domestic Oil & Gas Production


10,05714,347

20,678

OVL’s Financial Performance


Projects in the Exploration and Production stage are commonly known are E&P Projects and constitute the core of any upstream E&P company.

E&P Assets are acquired through bidding rounds, farm-out offers or company acquisitions.

Assets can be acquired in Exploration Phase or Discovered stage or Production Phase.

E&P Projects


E&P Project Life cycle

Exploration phase: usually 5 years Initial assessment through MWP to be completed in this phase.

Appraisal phase: usually 3-5 years. To complete appraisal of discoveries and assess remaining potential (Success case)

Development and Production phase: 20-25 years can extend further depending on lease renewals and field life.

Abandonment phase: Typically after 35-40 years of operations


Key Steps in E&P Asset acquisitions

This

process

can take

anywhere

from

9 to12

months

to close

• Scouting for E&P opportunities worldwide

• First step - Confidentiality Agreement

• Information Memorandum is a key document for decision to proceed further. Analysis made in-house.

• Evaluation of the opportunity based on data room (virtual / data room): The technical review and evaluation of the blocks on offer is primarily carried out in-house

• Opportunity if attractive and substantial - global technical, financial, legal, and tax & accounting advisors appointed through tendering process

•The offer is submitted to the seller and once the offer is accepted, the Project Group has to move swiftly to close the transaction, including finalization and execution of definitive agreements.

Acquisition of the asset


• OVL’s Vision and Mission• The OVL story• E&P Projects• Key Steps in E&P asset acquisition• Valuation issues• Summary



E&P Projects- Valuation Issues

Key Valuation Parameters: Reserves/ Resource (Million barrels O+OE) Risked Upsides (Million barrels O+OE) Production potential: (Barrels of oil/day) Capex:(US$ million) Opex: (US$ million) Crude Price:(US$ xx/ bbl) Discount Rate:(xx%) Taxes Effective Date: xx (1st January 2010)


190 190184

164

134

160

6260

50

3024 20

90

14 12 10 6 4 4 20

40

80

120

160

200

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

(‘0

00

bb

ls/d

ay)

Seller Potential Buyer-1 Potential Buyer-2

Year

Production profiles


91 184

1,770

5,150

2,700

1,270

717 630

91 820

1,000

2,000

3,000

4,000

5,000

6,000

1 2 3 4 5 6 7 8 9 10

(US

$m

)

Seller Potential BuyerYear

Capex profile


95100100100

106108115115116116114

10

106109113117121

125129129130130

0

25

50

75

100

125

150

1 2 3 3 4 5 6 7 8 9 10

(US

$m

)

0

25

50

75

100

125

150

(US

$m

)

Seller Potential Buyer

Year

Opex profile


Factors affecting Contractor take

Gross field production

PSA regime

Cost oil

Profit oil

Income tax

Net profit oil

Production (Kbarrels/d)

Govt. share of profit oil

(X%)

Contractor Group share

of profit oil (Y%)

<10 15 85 10 up to 15 20 80 15 up to 20 25 75 20 up to 30 30 70 >30 70 30

Recovery over -- years on straight line basis

Production costs 100% recoverable in same year

Total cost recovery limited to xx% of gross production per year

Split between Government and Contractor Group on a sliding scale (see table)

BB% Income tax rate

Residual production

Y%

BB%

State

Contractor Group

Up to cost recovery limits

X%

50%

100%


Sensitivity

(193)

(191)

(190)

(152)

(10)

185

182

190

174

10

(300.0) (200.0) (100.0) 0.0 100.0 200.0 300.0

Opex +/- 10%

WACC +/- 1%

Capex +/- 10%

Brent +/- 10%

Production +/- 10%

(US$m)

`


Cash Flow- Typical deepwater E&P Project

Appraisal Phase

Development and Production Phase Abandonment Phase

Year


• OVL’s Vision and Mission• The OVL story• E&P Projects• Key Steps in E&P asset acquisition• Valuation issues• Summary



E&P Asset valuation is based primarily on the following parameters:

•Reserve/resource base •Production potential.•Capex and Opex•Crude Price•Signature and production bonuses •Contractor take of Profit Oil•Taxes

The impact of each of these varies with the type of Asset and the discount rate . E&P assets are in general a long term play riddled with both sub surface and surface risks.

Summary

E&P Projects :OVL’s Quest for Equity Oil and Valuation Issues

Business

Transcript of E&P Projects :OVL’s Quest for Equity Oil and Valuation Issues