Arthur Lloyd Compressor Presentation

Equipment Management Conference & Exhibition
February 12 14, 2006
Compression Equipment A Valuation Primer
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Arthur Lloyd LLC Business Confidential 2006 All Rights Reserved
February 12, 2006 Page 1
Introduction

Big topic time is short We will briefly cover:

Definitions Compressor Systems and compressor types Applications Key valuation issues Costs Lives And a little bit on values
Included a glossary and sources of information
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Definitions - Compressor
Compressor A mechanical device that is used to increase the pressureor

compressa gas.
Compressor Types
Centrifugal Compressor Machines that use centrifugal force to compress gas by feeling it into a wheel with radial vanes. The wheel is then seal inside of a cylinder and spun. When the wheel rotates, the gas is thrown away from the wheel center. The outward spinning motion compresses the gas. Reciprocating Compressor Machines in which the compressing element is a piston having a reciprocating motion in a cylinder. Rotary Compressor Machines in which the compressing element is a set of rotating elements (often screws or lobes). Also a type of compressor belonging to the group of dynamic compressors characterized by having its flow in an axial direction.
Prime Mover the main mechanical power source of any number of devices. In
the energy industry it is typically an electric motor, reciprocating engine or gas/steam turbine.
natural gas at increased pressure from fields, in transmission pipelines, or into storage.
Compressor Station Any permanent combination of compressors that move
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Definitions Compressor (cont.)
Compressor Set Primary components of an assembled natural gas

compressor unit. Typically includes a tie-in which connects the system to a natural gas supply pipeline, dryers, filters, prime mover, compressor, cooling unit, controls, frame or skid and a sound enclosure that protects the equipment from the elements and provides noise reduction.
Integral Compressor Typically, single piece construction and include an

integral compressor, meaning that the power cylinders and compression cylinders are integrated on (share) the same crankshaft. These units are older technology, and are typically comprised of components assembled by a single manufacturer.
Separable Compressor Typically consist of component construction, which

may include individual pieces comprising an assembled unit of varying manufacture. These units are typically newer technology, may be of low to high horsepowerpackages may exceed 8,000 HPare of higher speed750 1,000 RPMand have increased power density compared to integral units, which allows operators to move large volumes with fewer machines. These units are typically more flexible in application and operate at greater efficiencies than integral units.
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Definitions - Appraisal
Fair Market Value The estimated amount, expressed in terms of money, that
may reasonably be expected for property in an exchange between a willing buyer and a willing seller, with equity to both, neither under any compulsion to buy or sell, and both fully aware of all relevant facts, as of a specific date.
money, that may reasonably be expected for an installed property in an exchange between a willing buyer and a willing seller, with equity to both, neither under any compulsion to buy or sell, and both fully aware of all relevant facts, including installation, as of a specific date. This amount includes all normal direct and indirect costs, such as installation and other assemblage costs necessary to make the property full operational.
Fair Market Value Installed - The estimated amount, expressed in terms of
terms of money, that may reasonably be expected for a property in an exchange between a willing buyer and a willing seller, with equity to both, neither under any compulsion to buy or sell, and both fully aware of all relevant facts, including installation, as of a specific date and assuming the business earnings support the value reported. This amount includes all normal direct and indirect costs, such as installation and other assemblage costs necessary to make the property full operational.
Source: Valuing Machinery and Equipment: The Fundamentals of Appraising Machinery and Technical Assets, ASA 2005
Fair Market Value In Continued Use - The estimated amount, expressed in
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Definitions Appraisal (cont.)
Fair Market Value Removal The estimated amount, expressed in terms of

money, that may reasonably be expected for an item of property in an exchange between a willing buyer and a willing seller, with equity to both, neither under any compulsion to buy or sell, and both fully aware of all relevant facts, considering removal of the property to another location, as of a specific date.
Orderly Liquidation Value The estimated gross amount, expressed in terms

of money, that could typically be realized from a liquidation sale, given a reasonable period of time to find a purchaser(s), with the seller being compelled to sell on an as-is, where-is basis, as of a specific date.
Forced Liquidation Value The estimated gross amount, expressed in terms

of money, that could typically be realized from a properly advertised and conducted public auction, with the seller being compelled to sell with a sense of immediacy on an as-is, where-is basis, as of a specific date.
Residual Value (lease) The value (typically fair market value) of leased
equipment at the end of the lease term.
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Definitions Appraisal (cont.)
Economic Useful Life The estimated period of time that a new property may
be profitably used for the purpose for which it was intended. Stated another way, it is the estimated number of years that a new property can be used before it would pay the owner to replace it with the most economical replacement property that could perform an equivalent service.
Normal Useful Life The physical life, usually in terms of years, that a new
property will actually be used before it is retired from service. A propertys normal useful life relates to how long similar properties actually tend to be used, as opposed to the more theoretical economic life calculation of how long a property can profitably be used.
Remaining Useful Life The estimated period during which a property of a

certain effective age is expected to actually be used before it is retired from service.
Effective Age The apparent age of a property in comparison with a new

property of like kind; that is, the age indicated by the actual condition of a property. (may be calculated by deducting the Remaining Useful Life from the Normal Useful Life.
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Compressor System
The general components of a compressed air system are illustrated schematically in the figure below:
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Compressor System (cont.)
Many accessories exist for use in compressed air systems. Some are relatively common and will be found in almost every installation, while others are special purpose devices and may be found under certain circumstances. Locations and application of devices that provide the "conditioning/drying" system function can be found in the following schematic.
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Types of Compressors
Reciprocating Compressors
Reciprocating compressors are positive displacement machines, meaning that they increase the pressure of the air by reducing its volume. The relationship between pressure and volume is illustrated in the figure below. This compressor has a crankshaft, connecting rods, and pistons. Single-stage as well as multi-stage reciprocating compressors are commercially available. A performance curve for a positive displacement machine is provided in the figure below. It can be seen that despite compressor discharge pressure, load remains constant. Load reduction is achieved by unloading individual cylinders. Typically, this is accomplished by throttling the suction pressure to the cylinder or bypassing air either within or outside the compressor. Capacity control is achieved by varying speed in engine-driven units through fuel flow control.
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Screw Compressors
Screw compressors are positive displacement machines that consist of helicallygrooved rotors that mesh together as shown below. The volume of a trapped mass of air is decreased along the rotor and the pressure is increased. Capacity control for these compressors is accomplished by variable speed and variable compressor displacement. For the latter control technique, a slide valve is positioned in the casing. As the compressor capacity is reduced, the slide valve opens, bypassing a portion of the compressed air back to the suction. Advantages of the rotary screw compressor include smooth, pulse-free air output in a compact size with high output volume over a long life.
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Centrifugal Compressors
Centrifugal compressors produce high-pressure discharge by converting angular momentum imparted by the rotating impeller (dynamic displacement), as illustrated in the figure below. In order to do this efficiently, centrifugal compressors rotate at higher speeds than the other types of compressors. These types of compressors are also designed for higher capacity because flow through the compressor is continuous. Adjusting the inlet guide vanes is the most common method to control capacity of a centrifugal compressor. By closing the guide vanes, volumetric flows and capacity are reduced.
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Types of Engines
Gas

Natural Gas Diesel
Electric Turbine Compressors may be driven by almost any prime mover a motor, steam turbine, combustion turbine, or internal combustion engine. Historically, electric motors have dominated the market. The use of natural gas engine drives has become a popular alternative. Gas engine-drive compressors can be used as the sole source of compressed air, or they may be used as part of a hybrid system. A hybrid air system is one that employs both electric motor and gas engine-driven air compressors.
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Manufacturers
Compressors

Prime Mover (Engine)

Ariel Ajax Cooper-Bessemer CSI Frick Gardner Denver Gemini Ingersoll-Rand LeRoi Sullair Worthington
Caterpillar Cummins Rolls Royce Waukesha White
- High demand brands

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Applications

Well head compression Gas gathering and storage systems Pipeline Pipeline station optimization Refrigerator plant compression Gas processing Gas transmission Gas lift Fuel gas booster Land fill Carbon dioxide injection Field Transmission
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Compressor Package
Skid-Mounted Reciprocating Compressor
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Compressor Package
Skid-Mounted Reciprocating Compressor
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Compressor Package
Electric v-belt drive
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Compressor Package
Skid-Mounted Rotary Compressor
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Compressor Package
Non-Skidded Rotary Screw Compressor

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Compressor Package
Centrifugal Compressor
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Compressor Package
Skid-Mounted Rotary Screw Compressor

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Compressor Package
Turbine Driven Centrifugal Compressor
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Compressor Package
Electric Motor Driven Reciprocating Compressor
Turbine Driven Centrifugal Compressor
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Reciprocating Compressor
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Rotary Screw Compressor
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Rotary Screw Compressor
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Centrifugal Compressor
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Compressor Package
Cemented Foundation Electric Motor Driven Reciprocating Compressor
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Gas Engine
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Gas Engine
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Electric Motor
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Turbine Engine
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Compressor Station
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Compressor Station
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Compressor Station
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Compressor Station
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Processing Plant
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Descriptive Information
Compressor

Drive

Other

Plant Name Plant Address Type of Compressor Manufacturer Model Serial Number Year Installed Year New Rated Output Capacity (ACFM) Typical Peak Capacity (ACFM) Operating Pressures (Max. and Normal PSIG) Number of Stages Number of Cylinders (recip) Variable Speed Throttle Intake
Type of engine Manufacturer Model Serial Number Speed (RPM) Horsepower Voltage (elect) Fuel Year Installed Year New Skid Mounted vs. Field Assembled Pollution Control Data (NOX, CO, O2) Catalytic Converter Enclosure Heat Recovery System (water jacket, exhaust)
Intercooler After Cooler (air/water) Oil Cooler Air/Oil Separator Tank Capacity Oil Filter Water Trap Air Filter Ventilation Fan Air Dryer Information Silencers
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Value Considerations

Compressor type Engine type Manufacturer (brand names) Age (chronologic and effective) Horsepower Configuration
Compressor number of stages, suction/discharge pressures, controls, etc. Engine number of cylinders, stroke, cylinder bore, controls, etc.
Condition Fleet compatibility Spare parts availability

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Value Considerations (cont.)

Installation (skidded, non-skidded, grouted in, trailer mounted) Environmental

Catalytic converter Grandfathered NOX, CO2
Hours since overhaul

Top end Bottom end Zero hour
Maintenance history (documented) Overall cost of ownership (capital, energy, runtime, parts, environmental, etc.)
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Other Issues

Time frame for equipment sale Production life of associated minerals (important for in-use buyers) Swapping engines and compressors Types of buyers
Those that would buy the equipment and relocate it for a similar or alternative use- such as domestic and foreign equipment dealers, brokers, speculators and end-users that may be able to use the equipment for related purposes Those that would purchase the entire mineral producing field inclusive of the compressor units and all other assets necessary for continuing operations such as other similar oil and gas production companies
Rental rates Demand for new vs. used equipment Cost of new equipment Available alternative compression Market Utilization
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Other Issues (cont.)

Premise of value (FMV-IU, FMV-Removal, OLV, etc.) Commodity pricing Geographic supply/demand Lease terms and conditions Exploration and production activity New unit delivery time Facts and circumstances
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Costs

RCN typically quoted on a unit cost (dollar per horsepower ($/HP)) basis Unit costs drop as capacity of system increases Cost new for compressor package includes direct/indirect costs
Equipment Engineering Construction Assembly Testing Licensing Etc.
Construction
Installed costs include

Engineering Labor Installation Transportation Testing Etc.
Note: Land, site ancillary or infrastructure assets, and spare parts are typically excluded in determining asset replacement costs
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Costs (cont.)
RCN has decreased over time due to advances in materials, construction techniques, technology and operating efficiencies. Construction costs for annual FERC-related projects can be obtained from the Oil and Gas Journal (O&GJ) as well as industry personnel.
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Costs (cont.)

Compressor package (RCN) - $1,500 - $500 per horsepower Installation costs 15% - 100%+ of equipment cost Overhaul (zero hour) - $5,000 - $250,000 Skid - $5,000 - $50,000 Emissions Upgrade - $5,000 - $30,000 Important Notes

Representative ranges only BE CAREFUL!!! Specific facts and circumstances determine costs Know the equipment, do your homework
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Life
What Life are we talking about?

Economic Useful Life Expected Useful Life
Normal Useful Life Remaining Useful Life
Life depends on many things

Equipment type Application Configuration How the equipment has been operated The type and nature of preventive and ongoing maintenance The environment in which the equipment was operated Overhauls, rebuilds, modifications Controls
Field life Lease requirements Spare parts availability Overall cost of ownership Commodity pricing Cost of new equipment Available alternative compression Market Utilization
Compressor equipment expected useful lives are often estimated at 20 - 25 years

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Value
What Value are we talking about?

Fair Market Value Fair Market Value Continued Use Fair Market Value Installed Fair Market Value - Removal
Orderly Liquidation Value Forced Liquidation Value Residual Other
A Couple Rules of Thumb

60% - 80% of RCN for excellent equipment 50% or less of RCN for average equipment 25% or less of RCN for poor equipment and parts
Notes

Fair market value estimates Percentages based on equipment RCN only Estimates reported by dealers/repackagers within the last 18 months Estimates are for skid-mounted units
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Value (cont.)
Key market value drivers

Age Equipment type Name brand Size Skidded Configuration (stages, etc.) Hours Rental rates Parts availability Quantity of units being bought/sold
Not the only drivers Market conditions constantly change
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Sources of Information

American Gas Association www.aga.org American Petroleum Institute www.api.org Baker Hughes www.bakerhughes.com BP www.bp.com Compressor Systems, Inc. www.compressor-systems.com E&Pnet.com www.eandpnet.com Energy Information Administration (EIA) www.eia.doe.gov Engineering News Record www.enr.com FedStats www.fedstats.gov Foster Associates, Inc. www.foster-fa.com Gas Compressor Association www.gascompressor.org Gas Processors Association www.gasprocessors.com Hanover Compressor Company www.hanover-co.com Hydrocarbon Processing www.hydrocarbonprocessing.com
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Sources of Information (cont.)

Independent Petroleum Association of America (IPAA) www.ipaa.org Interstate Natural Gas Association of America www.ingaa.org Natural Gas.Org www.naturalgas.org Natural Gas Intelligence www.intelligencepress.com Ohio Oil & Gas Association www.ooga.org Oil & Gas Investor www.oilandgasinvestor.com Oil & Gas Journal www.ogj.pennnet.com Pennwell www.pennwell.com Society of Petroleum Engineers www.spe.org Universal Compression Holdings, Inc. www.universalcompression.com US Department of Energy (DOE) www.doe.gov UT Petroleum Extension Service (PETEX) www.utexas.edu/cee/petex
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Glossary
Absolute Pressure (PSIA) - Pressure in excess of a perfect vacuum. Absolute pressure is obtained by algebraically adding gauge pressure to atmosphere pressure. Pressures reported in "Atmospheres" are understood to be absolute. Absolute pressure must be used in equations of state and in all gas-law calculations. Gauge pressures below atmospheric pressure are called "vacuum. Actual Capacity - Quantity of gas actually compressed and delivered to the discharge system at rated speed of the machine and
under rated pressure conditions.
Adiabatic Compression - A type of compression where no heat is transferred to or from the gas during the compression
process.
Aftercooler - Heat exchangers for cooling air or gas discharge from compressors. Designed to reduce the temperature and liquefy condensate vapors. Both air cooled and water cooled units are available. Atmosphere - The standard atmosphere is defined as the pressure exerted by a column of mercury 760 mm high with a density of 13,595 g/cm at the standard acceleration due to gravity of 9.8 m/s. The 760th part of this pressure unit is the torr. The technical atmosphere (at) denotes the pressure of a force of 1 kg acting on an area of 1 cm. Atmospheric Pressure - The pressure due to the weight of the atmosphere (air and water vapor) on the earth's surface. The
average atmospheric pressure at sea level (for scientific purposes) has been defined at 14.696 pounds per square inch absolute.
direction.
Axial Compressor - A compressor belonging to the group of dynamic compressors. Characterized by having its flow in the axial Bag House - a dust-collection chamber containing numerous permeable fabric filters through which the exhaust gases pass. Finer
particulates entrained in the exhaust gas stream are collected in the filters for subsequent treatment/disposal.
Barrel of Oil Equivalent (BOE) - A term frequently used to measure oil and gas on a comparative basis. In Canada, 6 mcf of natural gas is equivalent to one barrel of oil. Base Pressure - The pressure used as a standard in determining gas volume. Volumes are measured at operating pressures and then corrected to base pressure volume. Base pressure is normally defined in any gas measurement contract. The standard value for natural gas in the United States is 14.73 psia, established by the American National Standards Institute as standard Z-132.1 in 1969.
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Glossary (cont.)

Booster Station - A facility containing equipment which increases pressure on oil or gas in a pipeline. Brake Horsepower - The maximum rate at which an engine can do work as measured by the resistance of an applied brake.
Expressed in horsepower, typically at the crankshaft.
British Thermal Unit (BTU) - The quantity of heat necessary to raise the temperature of one pound of water one degree Fahrenheit from 58.5 to 59.5 degrees Fahrenheit under standard pressure of 30 inches of mercury at or near its point of maximum density. One Btu equals 252 calories, (gram), 778 foot-pounds, 1,055 joules or 0.293 watt hours. BTU/Cu ft - A measure of the heat available or released when one cubic foot of gas is burned. Centrifugal Compressor - A dynamic compressor. A machine in which air or gas is compressed by the mechanical action of rotating vanes or impellers imparting velocity and pressure to the air or gas. In a centrifugal compressor, flow is in a radial direction. Air enters the compressor through the machine mounted inlet control valve and flows to the first stage where the impeller imparts velocity energy to the air. The air then proceeds through a diffuser section which converts the velocity energy to pressure energy. A multistage centrifugal compressor is a machine having two or more of these stages. Cold Start - Starting a compressor from a state of total shutdown. Usually done with "local" control at the compressor. May be done with "remote" control, but only advised with "heavy" instrumentation and monitoring accessories. Compressed Natural Gas (CNG) - Natural gasmost often methane--in high-pressure surface containers that is highly compressed (though not to the point of liquefaction). CNG is used extensively as a trans-portation fuel for automobiles, trucks and buses in some parts of Italy, New Zealand, and in Western Canada, and has recently begun to penetrate some regions of the United States. Small amounts of natural gas are also transported overland in high-pressure containers. Compressor - A mechanical device for increasing the pressure of a gas. Compressor Station - Locations along the interstate pipeline at which large (thousands of horsepower) natural gas-powered engines increase the pressure of the market natural gas stream flowing through the station by compression. Constant Speed Control - The unit that runs continuously and matches air supply to demand, by loading and unloading the
compressor.
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Glossary (cont.)
Cubic Foot - The most common unit of measurement of gas volume. It is the amount of gas required to fill a volume of one cubic foot under stated conditions of temperature, pressure, and water vapor. Cubic Foot Standard - That quantity of gas which under a pressure of 14.73 psia and at a temperature of 60oF occupies a volume of one cubic foot without adjustment for water vapor content. Cubic Ft/day - The number of cubic feet of natural gas produced from a well over a 24 hour period, normally an average figure from a longer period of time. Generally expressed as mcf/d = thousand cubic feet per day, mmcf/d = million cubic feet per day, or bcf = billion cubic feet per day. Cubic Ft/min (CFM) - An airflow measurement of volume. Cubic M/sec - A volume. Cubic meters per second. Dedicated Gas Reserves - Gas reserves dedicated to a natural gas pipeline company by contract. For a pipeline it is the sum of all reserves dedicated to the company by contract. Discharge Piping - Is the piping between the compressor and the aftercooler, the aftercooler separator and the air receiver. Discharge Pressure - Is the total gas pressure (static plus velocity) at the discharge port of the compressor. Velocity pressure is
considered only with dynamic compressors.
Discharge Temperature - Is the temperature existing at the discharge port of the compressor. Distribution System - Generally mains, services, and equipment which carry or control the supply of gas from the point of local
supply to and including the sales meters. The system operates at various pressures as indicated below. a. High Pressure. A system which operates at a pressure higher than the standard service pressure delivered to the customer; thus, a pressure regulator is required on each service to control pressure delivered to the customer. Sometimes this is referred to as medium pressure. b. Low Pressure or Utilization Pressure. A system in which the gas pressure in the mains and service lines is substantially the same as that delivered to the customers' appliances; ordinarily a pressure regulator is not required on individual service lines.
Drive - A coupling between the compressor and the engine or motor. The three types of drives most common are; flange mounted motor, V belt drive or direct coupling.
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Glossary (cont.)
Drive - A coupling between the compressor and the engine or motor. The three types of drives most common are; flange mounted motor, V belt drive or direct coupling.
through a specific location.
Electronic Gas Measurement (EGM) - "Real time" monitoring of natural gas quantities, and characteristics, as it passes
Ethane (C2H6) - A colorless hydrocarbon gas of slight odor having a gross heating value of 1,773 Btu per cubic foot and a specific gravity of 1.0488. It is a normal constituent of natural gas. Field Pressure - The pressure of natural gas as it is found in the underground formations from which it is produced. Full Load - Achieved when the air compressor is running at full RPM with a fully opened inlet and discharge, delivering the
maximum volume at the rated pressure.
Gas Lift - The effect of gas pressure in an oil well which causes the oil to flow from the well. May be either natural or artificially induced by injecting gas into the hole under pressure. Below the surface, gas intermixes with the oil, lightens the oil column, and allows it to flow. Gas Plant - Any plant which performs one of the following functions: removing liquefiable hydrocarbons from wet gas or casinghead gas (gas processing); removing undesirable gaseous and particulate elements from natural gas (gas treatment); removing water or moisture from the gas stream (dehydration). Also, the original cost of property, plant and equipment owned and used by the utility in its gas operations and having an expectation of life in service of more than one year from the date of installation. Gas Turbine - A prime mover in which gas, under pressure or formed by combustion, is directed against a series of turbine blades;
the energy in the expanding gas is converted into mechanical energy supplying power at the shaft.
Gathering Station - A compressor station at which gas is gathered from wells by means of suction because pressure is not
sufficient to produce the desired rate of flow into a transmission or distribution system.
Gathering System - A network of pipelines (mains) transporting natural gas from individual wells to compressor station,
processing point, or main trunk pipeline.
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Glossary (cont.)

Gauge Pressure (PSIG) - Pounds per square inch above atmospheric pressure. Grouting - Installation of a compressor system whereby the a solid bond is created between the machine base and concrete foundation, typically using an epoxy bonding material. Horsepower - Is a unit of work equal to 33,000 foot pounds per minute, 550 foot pounds per second, or 746 Watts. Hydrogen Sulfide (H2S) - A poisonous, corrosive compound consisting of two atoms of hydrogen and one of sulfur, gaseous in
its natural state. It is found in manufactured gas made from coals or oils containing sulphur and must be removed. It is also found to some extent in some natural gas. It is characterized by the odor of rotten eggs.
Impeller - The part of the rotating element of a dynamic compressor that imparts energy to the flowing medium by means of centrifugal force. It consists of a number of blades mounted so as to rotate with the shaft. Inlet Pressure - Is the total pressure (static plus velocity) at the inlet flange of the compressor. Inlet Temperature - Is the temperature at the inlet flange of the compressor. Integral Compressor - Integral units are typically single piece construction and include an integral compressor, meaning that
the power cylinders and compression cylinders are integrated on the same crankshaft. These units are older technology, and are typically comprised of components assembled by a single manufacturer. Integral compressor operating characteristics include higher horsepower1,000 HP or greaterand lower speed operation300 revolutions per minute (RPM) or lesswhich generally results in lower wear and tear.
Liquefied Natural Gas (LNG) - Natural gas which has been liquefied by reducing its temperature to minus 260 degrees
Fahrenheit at atmospheric pressure. It remains a liquid at -116 degrees Fahrenheit and 673 psig. In volume, it occupies 1/600 of that of the vapor at standard conditions
Main System - The network of distribution piping to which customers' service lines are attached. Generally, large pipes are laid in
principal streets with smaller laterals extending along side streets and connected at their ends to form a grid; sometimes laterals are brought to dead ends.
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Glossary (cont.)
MCF - The quantity of natural gas occupying a volume of one thousand cubic feet at a temperature of sixty degrees Fahrenheit and
at a pressure of fourteen and seventy-three hundredths pounds per square inch absolute.
MMCF - A million cubic feet. MMCF/d - Millions of cubic feet per day (24 hours). Methane (CH4) - The first of the paraffin series of hydrocarbons. The chief constituent of natural gas. Pure methane has a
heating value of 1012 Btu per cubic foot.
MMBTU - A thermal unit of energy equal to 1,000,000 Btus, that is, the equivalent of 1,000 cubic feet of gas having a heating
content of 1,000 Btus per cubic foot, as provided by contract measurement terms.
Multi-Stage Compressor - A compressor employing two or more stages. Name Plate Rating - The full-load continuous rating of a generator, prime mover, pump, compressor, or other equipment under
specified conditions as designated by the manufacturer. It is usually indicated on a name plate attached mechanically to the individual machine or device.
Natural Gas - A naturally occurring mixture of hydrocarbon and nonhydrocarbon gases found in porous geologic formations
beneath the earth's surface, often in association with petroleum. The principal constituent is methane. 1. Dry. Gas whose water content has been reduced by a dehydration process. Gas containing little or no hydrocarbons commercially recoverable as liquid product. Specified small quantities of liquids are permitted by varying statutory definitions in certain states. 2.Liquefied (LNG). See LIQUEFIED NATURAL GAS. 3. Sour. Gas found in its natural state, containing such amounts of compounds of sulfur as to make it impractical to use, without purifying, because of its corrosive effect on piping and equipment. 4.Sweet. Gas found in its natural state, containing such small amounts of compounds of sulfur that it can be used without purifying, with no deleterious effect on piping and equipment. 5. Wet. Wet natural gas is unprocessed natural gas or partially processed natural gas produced from strata containing condensable hydrocarbons. The term is subject to varying legal definitions as specified by certain state statutes. (The usual maximum allowable is 7lbs./MMcf water content and .02 gallons/Mcf of Natural Gasoline.)
OEM - Original equipment manufacturer.
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Glossary (cont.)
Oil System - Consists of a vessel which is a combination of oil sump and oil separator, an oil cooler and an oil filter. Performance Curve - A plot of expected operating characteristics (e.g.., discharge pressure versus inlet capacity, shaft
horsepower versus inlet capacity).
Pipeline - All parts of those physical facilities through which gas is moved in transportation, including pipe, valves, and other
appurtenances attached to pipe, compressor units, metering stations, regulator stations, delivery stations, holders, and fabricated assemblies.
Pressure Differential (PSID) - Pounds per square inch, differential. Processing Plant - A plant, generally located at the terminus of a gathering system, in which liquefiable hydrocarbons such as
propane, butane, ethane, or natural gasoline are extracted from the gas stream.
Propane (C3H8) - A gas, the molecule of which is composed of three carbon and eight hydrogen atoms. Propane is present in
most natural gas and is the first product refined from crude petroleum. It has many industrial uses and may be used for heating and lighting. Contains approximately 2,500 Btu per cubic foot.
Receivers - Tanks used for the storage of air discharged from compressors. They serve also to damp discharge line pulsations. Reciprocating Compressor - Compressors in which the compressing element is a piston having a reciprocating motion in a
cylinder.
Rotary Compressor - Compressors in which compression is effected by the positive action of rotating elements. Rotor - The rotating element of a machine and, in the case of a compressor, is composed of the impeller (impellers) and shaft, and may include shaft sleeves and a thrust balancing device.
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Glossary (cont.)
SCFM - Standard cubic feet per minute., SCFM or scfm. Flow of free air measured at some reference point and converted to a standard set of reference conditions (e.g., 14.4 psia, 80 F, and 60% relative humidity.) Scfm means cfm at standard conditions. However, standards vary and some care is necessary. In the United states, the usual standard is 14.696 psiA and 60F. Some chemical engineers will use one ATA and 0C, but usually will be specific about the reference point. Europeans normally use one ATA and 0C. It is not the same to all people, therefore it is best that the reference pressure and temperature be definitely specified. Separable Compressor - Separable units typically consist of component construction, which may include individual pieces comprising an assembled unit of varying manufacture. These units are typically newer technology, may be of low to high horsepowerpackages may exceed 8,000 HPare of higher speed750 1,000 RPMand have increased power density compared to integral units, which allows operators to move large volumes with fewer machines. These units are typically more flexible in application and operate at greater efficiencies than integral units. Skid - Portable platform designed specifically to house the components of a compressor or compressor package. Sour Gas - Natural gas contaminated by corrosion inducing impurities such as hydrogen sulfide. Stages - Steps in the compression of a gas, In reciprocating compressors, each stage usually requires a separate cylinder, in
dynamic compressors, each requires a separate rotor disc.
Steam/Gas Turbine - An enclosed rotary type of prime mover in which heat energy in steam or gas is converted into
mechanical energy by the force of a high velocity flow of steam or gas directed against successive rows of radial blades fastened to a central shaft.
Suction Pressure - This is the pressure found on the suction side of a refrigeration system. Sweet Gas - Natural gas not contaminated by corrosion inducing impurities such as hydrogen sulfide, or with a low level of
impurities.
Top End Overhaul - A maintenance level that includes an overhaul of the top end of the engine or compressor only.
Typically includes removal and overhaul of the cylinders, pistons, piston rings, valves and other components that are serviceable without disassembling of the crankcase.
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Glossary (cont.)
Transmission System - Pipelines (mains) installed for the purpose of transmitting gas from a source or sources of supply to one or more distribution centers, to one or more large volume customers, or a pipeline installed to interconnect sources of supply. In typical cases, transmission lines differ from gas mains in that they operate at higher pressures, are longer, and the distance between connections is greater. Utilization Factor - The ratio in percentage of the time that the equipment is in operation to the total working time. V-Belt Drive - A drive arrangement for power transmission to compressors. Voting Alarm - (Compressors/Gas Turbines) Is an alarm system that has maybe 3 sensors connected to it and it will require minimum of 2 of the 3 to alarm before the alarm will act. There is a controller connected that does the logic decision based on set parameters. Zero Hour Overhaul - A completely remanufacture a compressor prime mover to as new specifications.
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Remember This

Equipment may differ, valuation issues are similar Due diligence is key Understand the equipment Understand the market today and in the future Understand the lease terms & conditions and their impact on value Remember the valuation issues Keep track of the assets Current valuation and residual forecasting is not an exact science
Arthur Lloyd LLC

Thank You!
Jeffrey A. Hutton, Partner Arthur Lloyd LLC 120 Oxford Court, Suite 100 Austin, Texas 78737 Office: (512) 301- 5364 E-mail: jeff.hutton@arthurlloyd.com Web: www.arthurlloyd.com
About Arthur Lloyd LLC Arthur Lloyd LLC is an asset valuation and consulting firm with offices in Austin and Dallas, Texas, providing a broad range of valuation services to a variety of companies in a wide range of industries. Our management team consists of two principals with more than 30 combined years of asset valuation, engineering and business consulting experience. We have extensive experience providing valuation and consulting services to Fortune 1000 companies both domestically and internationally in the areas of mergers and acquisitions, federal tax and financial reporting, property tax planning and appeal and asset based lending.
Arthur Lloyd LLC


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Equipment Management Conference & Exhibition

February 12 14, 2006

Compression Equipment A Valuation Primer

Arthur Lloyd LLC

Arthur Lloyd LLC Business Confidential 2006 All Rights Reserved

February 12, 2006 Page 1

Big topic time is short We will briefly cover:

Included a glossary and sources of information

Arthur Lloyd LLC

Arthur Lloyd LLC Business Confidential 2006 All Rights Reserved

February 12, 2006 Page 2

Compressor A mechanical device that is used to increase the pressureor

Compressor Station Any permanent combination of compressors that move

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February 12, 2006 Page 3

Definitions Compressor (cont.)

Compressor Set Primary components of an assembled natural gas

Integral Compressor Typically, single piece construction and include an

Separable Compressor Typically consist of component construction, which

Arthur Lloyd LLC

Arthur Lloyd LLC Business Confidential 2006 All Rights Reserved

February 12, 2006 Page 4

Fair Market Value Installed - The estimated amount, expressed in terms of

Fair Market Value In Continued Use - The estimated amount, expressed in

Arthur Lloyd LLC

Arthur Lloyd LLC Business Confidential 2006 All Rights Reserved

February 12, 2006 Page 5

Definitions Appraisal (cont.)

Fair Market Value Removal The estimated amount, expressed in terms of

Orderly Liquidation Value The estimated gross amount, expressed in terms

Forced Liquidation Value The estimated gross amount, expressed in terms

Arthur Lloyd LLC

Arthur Lloyd LLC Business Confidential 2006 All Rights Reserved

February 12, 2006 Page 6

Definitions Appraisal (cont.)

Remaining Useful Life The estimated period during which a property of a

Effective Age The apparent age of a property in comparison with a new

Arthur Lloyd LLC

Arthur Lloyd LLC Business Confidential 2006 All Rights Reserved

February 12, 2006 Page 7

Arthur Lloyd LLC

Arthur Lloyd LLC Business Confidential 2006 All Rights Reserved

February 12, 2006 Page 8

Compressor System (cont.)

Arthur Lloyd LLC

Arthur Lloyd LLC Business Confidential 2006 All Rights Reserved

February 12, 2006 Page 9

Arthur Lloyd LLC

Arthur Lloyd LLC Business Confidential 2006 All Rights Reserved

February 12, 2006 Page 10

Arthur Lloyd LLC

Arthur Lloyd LLC Business Confidential 2006 All Rights Reserved

February 12, 2006 Page 11

Arthur Lloyd LLC

Arthur Lloyd LLC Business Confidential 2006 All Rights Reserved

February 12, 2006 Page 12

Natural Gas Diesel

Arthur Lloyd LLC

Arthur Lloyd LLC Business Confidential 2006 All Rights Reserved

February 12, 2006 Page 13

Prime Mover (Engine)

Caterpillar Cummins Rolls Royce Waukesha White

- High demand brands