Analysis, Valuation, & M&A in Oil & Gas (Modular Course)

Analysis, Valuation, & M&A in Oil & Gas (Modular Course)

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Analysis, Valuation, and M&A in Oil and Gas (Modular Course) 15-18 December 2014, Hong Kong M1 - Analysis and Valuation of Reserves and E&P Companies 15-16 December 2014, Hong Kong M2 - Midstream Assets: Analysis and Valuation of Gathering and Transmission Assets and Firms 17 December 2014, Hong Kong M3 - Downstream Assets: Analysis and Valuation of Refining and Marketing Assets and Firms 18 December 2014, Hong Kong Each module can be booked separately. Attend all the modules and save US$2,280. Contact energy@euromoneyasia.com for more information. Course description Analysis and valuation in the energy sector is complicated by its division into three main segments – “upstream” exploration a…

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Analysis, Valuation, and M&A in Oil and Gas (Modular Course) 15-18 December 2014, Hong Kong M1 - Analysis and Valuation of Reserves and E&P Companies 15-16 December 2014, Hong Kong M2 - Midstream Assets: Analysis and Valuation of Gathering and Transmission Assets and Firms 17 December 2014, Hong Kong M3 - Downstream Assets: Analysis and Valuation of Refining and Marketing Assets and Firms 18 December 2014, Hong Kong Each module can be booked separately. Attend all the modules and save US$2,280. Contact energy@euromoneyasia.com for more information. Course description Analysis and valuation in the energy sector is complicated by its division into three main segments – “upstream” exploration and production (“E&P”), “midstream” gathering and transmission, and “downstream” refining and marketing. The sector also has unique and highly industry-specific “metrics” for performance measurement and valuation. Finally, substantial changes in organisational forms – especially the division of E&P from midstream and downstream assets, and the further organisation of “pure-play” gathering/transmission assets – are a further challenge. In appraising potential E&P investments, IPO opportunities, or M&A situations, a familiarity with reserve modelling is critical. Cashflows must be modelled so as to reflect the differing natures of developed vs. non-developed, producing vs. non-producing, and proven vs. probable and possible reserves. Non-production “hard assets” and unexplored production acreage also need to be included in any valuation. Cashflow models reflecting these differing assets, and which break down value into “going concern” vs. “liquidation scenarios”, are invaluable in making analytical judgments. The breadth of the sector requires an understanding of the valuation of “midstream” and “downstream” assets. Investors are increasingly expressing strong preferences for “pure-play” exposures, and such assets can have very attractive sustainable cashflow characteristics, which can be utilised to fund “upstream” activities. Comparable firm and comparable transaction analysis is critical in this area. This 4-day modular course provides necessary practical skills to model and value upstream, midstream, and downstream assets, from the perspective of an investor, equity analyst, or as part of a corporate transaction. The course will: Provide practical exposure to reserve DCF modelling techniques, and contrast the different categories of reserves, both in “going concern” and “liquidation scenarios, and how these are modelled Review of methodologies for valuing non-reserve “hard” assets, as well as midstream and downstream activities Define key industry-specific metrics, such as BOE, MMCFE, DACF, EBITDAX, distribution yields, etc. Highlight public market valuation of upstream, midstream, downstream, and integrated assets, as well as explore structures such as royalty trusts and gathering/transmission MLPs Illustrate these techniques in the M&A context, while exploring credit issues and the financing of energy firms Computer-based Exercises Delegates should bring a laptop installed with Microsoft Excel 2010 or later, with a CD drive or USB port. Who should attend? This course is designed for any professional involved in analysing energy sector firms and assets: Energy investment bankers Sell-side securities analysts Buy-side portfolio managers Sovereign wealth and pension fund analysts Corporate planners and strategists Credit analysts Accountants and lawyers working with energy clients and transactions
M1 - Analysis and Valuation of Reserves and E&P Companies 15-16 December 2014, Hong Kong Analysis and valuation of reserves and E&P companies using DCF and NAV Firms and investors need to deploy intrinsic or absolute approaches when analyzing and valuing upstream assets – oil and gas reserve bases. Discounted cashflow methodology is the most common tool when valuing such exploration and production (E&P) assets, resulting in an estimated Net Asset Value (NAV) for an upstream resource. But such analysis involves many assumptions about future oil and gas pricing, production levels, extraction costs, capital expenditure, reserve lives, residual values, and discount rates. Energy assets: upstream vs. midstream vs. downstream ‘Gassy” vs. “oily” assets Definitions: proven producing vs. proven not producing vs. probable vs. possible reserves Production level assumptions Extraction cost assumptions Output price assumptions Capital expenditure assumptions Depletion and depreciation Determining the discount rate Estimating a residual or terminal value Liquidation or “blowdown” approach to DCF modeling and valuation Reserve replacement approach to DCF modeling and valuation Possible reserves as “real options” A key question: how much of a reserve base should an E&P company maintain? A “rule-of-thumb” with justification Case studies: AMOCO sale of MW petroleum to apache Excel model of MW petroleum reserves valuation Analysis and valuation of reserves and E&P companies using comparable firm metrics and operational metrics Firms and investors also need to deploy relative approaches when analyzing and valuing upstream assets. DCF methodology is most common for a developer/owner/operator of a reserve, but even privately-held operators have to raise capital from non-operator investors. Such investors are very focused on public market benchmarks for production assets, and hence peer group or comparable company analysis is vital. A third alternative, operational metrics such as enterprise value per barrel of oil equivalent (EV/BOE), provide a very commonly-used “rule-of-thumb” approach. E&P firms: - Finding costs, success rates - Measuring returns to capital: ROIC vs. CFROI Nature of the reserves and impacts on valuation: “gassy” firms vs. “oily” firms and the impact of the relative prices of oil and natural gas Identifying the peer group: “dimensions of comparability” Two key issues: - Political risk: geographic location of reserves? - Economic risk: cost and feasibility of extraction? How to measure performance and valuation: valuation metrics - Energy sector highlight: depletion and depreciation - Full-cost vs. successful efforts accounting Cashflow metrics - Price/ cash earnings - EV/DACF - EV/EBITDA - EV/EBITDAX - Dividend, DACF, and EDITDA yields Price/NAV An alternative: operational metrics - EV/proven producing reserves - EV/proven producing and proven non-producing reserves - EV/proven producing, proven non-producing, and probable reserves EV/proven producing, proven non-producing, probable, and possible reserves - EV/barrel vs. EV/MCFE vs. EV/BOE Conventions for valuing associated fixed assets Sum-of-the-parts analysis Capital-sourcing for E&P firms Credit issues for E&P assets Case studies: A typical mid-size E&P firm: St. Mary’s Oil and Gas An interesting option: Islamic Sukuk Bond Financing of Gulf of Mexico E&P Play Upstream MLPs and Royalty Trusts In disposing of R&M networks via spin-offs, many previously “integrated” firms have become essentially upstream assets. A traditional way to finance upstream activities has been to segregate proven producing properties into separate firms, organized as royalty trusts or production master limited partnerships, which then can be monetised to provide capital for additional exploration. Once again, the creation of such royalty trusts and production MLPs has resulted in enormous capital-raising and M&A activity. No replacement: upstream assets as “wasting” assets Royalty trusts vs. production master limited partnerships “Fire-and-forget” production assets as yield plays Cashflow metrics - Distribution yield - Price/ earnings - Price/ cash earnings - Price/ distributable cashflow - EV/EBITDA Price/ book value Residual values Case studies Prudhoe bay royalty trust LINE Energy M2 - Midstream Assets: Analysis and Valuation of Gathering and Transmission Assets and Firms 17 December 2014, Hong Kong Many “integrated” oil and gas firms have assets beyond production reserves – such as pipeline “gathering” and transmission networks, known as midstream assets. A worldwide revolution toward the creation of numerous “pure-play” companies in this sector has resulted in enormous capital-raising and M&A activity among pipeline master limited partnerships. The pipeline master limited partnership revolution The role of leverage in MLPs Cashflow metrics - Distribution yield - Price/ earnings - Price/ cash earnings - Price/ distributable cashflow - EV/EBITDA Price/ book value Transmission assets as “infrastructure private equity” – inflation hedges Partnerships structures: GPs vs. LPs, incentive agreements Capital-sourcing for MLPs Credit issues for MLP assets Case study: The Kinder Morgan MLP Complex: Kinder-Morgan Partners, Kinder Morgan Inc., and Kinder Morgan Management M3 - Downstream Assets: Analysis and Valuation of Refining and Marketing Assets and Firms 18 December 2014, Hong Kong Just as many “integrated” oil and gas firms have midstream assets, many also have downstream assets, such as refineries and petrol station networks. Many firms historically have been “pure-play” refining and marketing (R&M) firms. But a second worldwide revolution among “integrated” companies has been their disposal, via spinoffs, of their R&M assets as pure-play companies. Once again, this revolution has resulted in enormous capital-raising and M&A activity. Traditional pure play refiners and marketers The break-up wave: marathon, conoco, hess, occidental petroleum Cashflow metrics - Price/ earnings - Price/ cash earnings - EV/EBITDA Price/ book value Sum-of-the-parts analysis Refining and marketing assets as “infrastructure private equity” – inflation hedges Environmental rectification liabilities: a big potential headache for R&Ms Case studies: China’s big R&M firm: Sinopec Esso Oil (Thailand) initial public offering Exxon sale of Japanese R&M assets Marathon Petroleum: now an R&M pure play Break-up of Conoco into Conoco and Phillips 66 Sum-of-the parts valuation of “big integrateds” M&A in oil and gas: Bringing it all together: M&A in the energy sector The centrality of energy to modern life, the scale of the sector, its capital intensity, and its inherent risks have all made it a fertile area for capital-raising and consolidation activity. The range of asset types – upstream, midstream, downstream – as well as corporate forms – corporations, trusts, master limited partnerships – add to this richness. E&P vs. midstream vs. R&M assets Sum-of-the-parts analysis DCF valuation in M&A Comparable firm analysis in M&A Comparable transaction analysis in M&A Operational metrics in M&A Accretion and dilution and credit/ funding issues Case studies: Union Pacific Resources takeover of Norcen Energy Excel model of Norcen energy reserves: “blowdown scenario” Excel model of Norcen energy reserves: “growth scenario” Course summary and close
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