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Sharing Session
1
Internal
Sharing Schedule
Q&A
01.00 pm Lunch Break
02.00 pm FDP Model Sharing Session
04.00 pm Q&A
2
Internal
Economic evaluation generates value indicators..
Technical
Inputs
Production
CAPEX Economic Economic
OPEX Model Results
ABEX Net Cash Flow Economic
Capital Indicators
Allowance e.g. NPV, IRR
Tax
Fiscal
Economic Arrangement
Assumptions
Price
Forex
Sensitivity
Analysis
4
Internal
Economic Analysis Work Flow
Technical
Inputs
Production
CAPEX Economic Economic
OPEX Model Results
ABEX Net Cash Flow Economic
Capital Indicators
Allowance e.g. NPV, IRR
Tax
Fiscal
Economic Arrangement
Assumptions
Price
Forex
Sensitivity
Analysis
5
Internal
Technical Input Data
Technical Data required for full life cycle of field
6
Internal
Technical Input Data
50
Oil Production Profile Gas Production Profile
Plate Decline 120
Build up Build up Plate Decline
au au
40
mmscf/d
80
Kbbl/d
30
20
40
10
0 0
Year Year
7
Internal
Technical Input Data
-100
-300
-400
-500
• OPEX are recurring cost incurred once production start and are usually
smaller in magnitude compared to CAPEX necessary to maintain the
production from the field
8
Internal
Economic Analysis Work Flow
Technical
Inputs
Production
CAPEX Economic Economic
OPEX Model Results
ABEX Net Cash Flow Economic
Capital Indicators
Allowance e.g. NPV, IRR
Tax
Fiscal
Economic Arrangement
Assumptions
Price
Forex
Sensitivity
Analysis
9
Internal
Oil and Gas Price
Technical
Inputs
Production
CAPEX Economic Economic
OPEX Model Results
ABEX Net Cash Flow Economic
Capital Indicators
Allowance e.g. NPV, IRR
Tax
Fiscal
Economic Arrangement
Assumptions
Price
Forex
Sensitivity
Analysis
11
Internal
We do economic evaluation to determine the economic
merit of making an investment, derived from Net Cash
Flow
In simplest terms, a net cash flow forecast is a
forecast of the CASH balance after deducting all
monies spent from monies earned.
The merit or the economic health of the project is
measured using economic yardsticks, derived from
the project Net Cash
Net Cash Flow Flow (NCF).
= Cash Inflow minus Cash
Outflow
Cash In = Revenue
(less) Royalty
(less) Opex
Income Before Tax
(less) Tax
Income After Tax
(less) Capex
Cash Out = Royalty + Opex
+ Capex +Tax
Net
Cash Flow After Tax
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Internal
Calculating Net Cash Flow
Exercise 1 : Calculate the Net Cash Flow After Tax(1) for the following d
Royalty 10%
Tax 30%
(assuming no
depreciation)
Note:
(1) Example from a Royalty-Tax fiscal
regime
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Internal
Calculating Net Cash Flow
Exercise 1 : Calculate the Net Cash Flow After Tax(1) for the following d
SUGGESTED ANSWER
Capex 50.0 US$ MM
Opex 50.0 US$ MM Revenue 140.0
less Royalty (14.0)
less Opex (50.0)
Production 7.0 MMstb Income Before Tax 76.0
US$/bb less Tax (22.8)
Price 20.0
l Income After Tax 53.2
less Capex (50.0)
Royalty 10% Net Cash Flow After Tax 3.2MMUS$
Tax 30%
(assuming no
depreciation)
Note:
(1) Example from a Royalty-Tax fiscal regime
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Internal
Types of Fiscal Arrangements
Petroleum Fiscal
Arrangements
Concessionary
Contractual
Systems
Systems
Oil companies owns the Government has the sole
production ownership of petroleum
Contractors pay royalty and resources.
tax to the government Oil companies are assigned as
contractors
Contractors furnish all risk
capital in return,
contractors will be allowed
to recover the cost upon
Service Production Sharing
production
Contract Contract
For Service Contract: For Production Sharing
remaining profit Contract: remaining
belongs to government; profit (after cost
contractors will be recovery) is shared
compensated through between government &
unused cost oil as contractors
their ‘remuneration’
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Internal
Evolution of Malaysia PSC
2017
Deepwater
2012 R/C PSC
Progressive To attract
Volume new foreign
2011 based exploration
investment in
Risk Service To attract
deepwater
1997 Contract development
are and
of riskier
promote use
To promote potential in
R/C PSC of cost-
1994 niche platers brown fields
effective new
and promote technology in
Deepwater/ innovation for Provide base
To attract the
ultra cost volume for
1985 new foreign deepwater
deepwater PSC optimization Contractor to
exploration area
and increase accelerate
Target big investment
1985 PSC local cost recovery
1976 player with and to
experience in promote use participation
deepwater of cost- and develop
To attract
1976 PSC exploration, effective new local
Pre 1976 foreign
development technology in capability
investor to
explore oil and the
Primarily to
Concession and gas production exploration
convert the
resources for higher risk
then existing
subtle plays.
Concession concession
agreement agreements Progressively Profitability
between oil into PSCs. Profitability Some better profit based sliding
Production Production
companies based sliding diversion in sharing to fiscal regimes
tranche tranche
and state Fixed profit fiscal risk/reward contactor with tied to index
based fiscal based fiscal
government split regimes tied sharing development
term term
to index structure of new
resources
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Internal
Calculating PSC Net Cash
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Internal
Cost Bank and Cost Recovery Concepts
• Cost Bank = Balance of cost to be recovered Deposit Withdrawal
= Unrecovered Cost
BANK
Cost incurred
= Current Cost Bank Balance Cost Recovery
(+) Total Cost for the period Unrecovered Cost
(- ) Cost Recovered
• Actual Cost Recovered = MIN [Cost Recovery Ceiling vs. Amount Cost
Bank]
Actual Cost
Recovery
% )
Royalty
TIME ( YRS )
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Internal
Calculating Cost & Profit Oil
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Internal
Calculating Cost & Profit Oil
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Internal
Calculating Cost & Profit Oil
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Internal
Calculating Cost & Profit Oil
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Internal
Economic Analysis Work Flow
Technical
Inputs
Production
CAPEX Economic Economic
OPEX Model Results
ABEX Net Cash Flow Economic
Capital Indicators
Allowance e.g. NPV, IRR
Tax
Fiscal
Economic Arrangement
Assumptions
Price
Forex
Sensitivity
Analysis
25
Internal
Profitability Indicator Concept
Ultimate Cash Surplus = $
1200
1,125 MM
Net Cashflow
1000
Cum Cashflow Ultimate Cash Surplus
800
Cumulative Net Cash
600
Flow at the end of
Cashflow, $ MM
project life
400
200
-200
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Internal
Profitability Indicator Concept
1200
Net Cashflow
1000
Cum Cashflow
800
Breakeven
Investment
600
Payout Period = The year when the sum
Cashflow, $ MM
0
1st Investment
-200 Investment Payout Period
-400
No of years from First
Investment to achieve
breakeven
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Internal
Profitability Indicator Concept
1200
Net Cashflow
1000
Cum Cashflow Economic Limit
800
Cash is realised
400
200
-200
Economic Life
-400
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Internal
Profitability Indicator Concept
Net Cashflow
1000
Cum Cashflow Profit Investment Ratio
(PIR)
800
• Amount earned for
every dollar spent
600
Cashflow, $ MM
• Formula: Undiscounted
Net Present Value /
400 Total Investment
-200
-400
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Internal
Profitability Indicator Concept
Net Present Value
200
(NPV)
100 Sum of
discounted
0 Net Cash Flow
over project
-100 life
-200
Cashflow disc
-20 disc -50
disc disc
-150 -100 -50 100 150
series
n 1 -20
1 -50 -150 2 -100 -50 3 100 150 4 5 6
Disc.
series
Factor 2
1.00 0.91 0.83 0.75 0.68 0.62 0.56
(10%)
-20
-45
1200
-124
0
85
Total -151 Net Present Value @ 10% -400
=
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Internal
Profitability Indicator Concept
800
600
IRR = 24%
400
200 NPV@24% = 0
0
0% 5% 10% 15% 20% 25% 30% 35%
(200)
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Internal
Sample of Economic Analysis
Project A Project B
100 100
50 50
0 0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1 2 3 4 5 6 7 8 9 10 11 12
-50 -50
-100 -100
-150 -150
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Internal
FDP Economic Model
2.00 PM – 4.00PM
33
Internal
Q&A
4.00 PM – 5.00PM
34
Internal
Thank you
35
Internal