Modelling Oil & Gas Companies

Course Overview:

This course will introduce participants to what makes oil and gas companies different, and to ways of assessing their performance and valuation.

Definitions of reserves, industry specific accounting, and the application of both absolute and relative valuation techniques will be discussed.

The course requires a basic understanding of accounting and delegates will need laptops with Excel loaded in order to complete the exercises.

Participants are required to bring laptops with Excel loaded to the course.

Economic background to mineral extraction companies
 The markets for oil and gas: how big are they, what drives them, and how do they work?
 Commodity markets, and trading instruments: physical volumes, forward contracts, futures contracts and swaps
 Interpretation of forward price curves: what do backwardation and contango tell us?
 OPEC, state versus independent oil companies, and the implications of cost and reserve replacement statistics

Participants interpret a forward price curve

What makes mineral extraction companies different?
 Economic versus geological constraints to reserves: how recovery factors are dependent on prices and costs
 Definition of commercial, contingent and potential reserves: bankable projects, out-of-the-money assets, and exploration upside
 Probability distributions: proven, probable and possible oil reserves
 How to interpret oil and gas reserve reports, particularly the supplementary information on exploration and production activities
 How to measure reserve replacement: volume and cost effectiveness
 Accounting for exploration and measurement of exploration and development costs, and assessment of corporate performance

Participants analyse the reserve statements for an oil and gas company, and analyse corporate performance

Valuing mineral reserves
 Tax regimes: royalty and tax versus oil Production Sharing Contracts (PSCs)
 Building Discounted Cash Flow (DCF) models of individual assets, and corporate valuation based on liquidation models
 Going concern models of oil exploration companies and the problem of appropriate terminal values
 Valuing technical reserves and exploration opportunities: real options theory and probability trees
 Enterprise value to equity value: getting from a value of the assets to the value of the equity

Participants complete a model of an oil PSC and interpret its contribution to consolidated accounts and to a company valuation, complete a going concern forecast and valuation of an exploration and production company, and value a contingent resource and an exploration license

Comparable companies analysis applied to mineral extraction
 Relative versus absolute value: when and why to apply multiples analysis
 Valuation measures for oil and gas companies: why the emphasis on cash flow over profit? Why net of tax cash flow rather than Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA)?
 Which metric? Value related to reserves, production life, cash flow per unit produced, exploration upside
 Application of multiples for new issues, stock selection and mergers and acquisitions: when and how to apply which measure, and methods of interpretation

Participants complete and interpret a comparable companies analysis for a cohort of oil and gas companies

Discounts available for multiple participants:

3-4 participants: 15% discount per participant
5-6 participants: 20% discount per participant
7-8 participants: 25% discount per participant
9 or more participants: 30% discount per participant

Delivering this course in-house for you to a number of participants could be very cost effective.

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