K&F offers due diligence and techno-commercial

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1 Techno-Commercial Simulation by Kostro&Friedel Pte. Ltd. (K&F) K&F offers a novel asset valuation framework with a state of the art technocommercial simulator at its core. The simulator enables fully probabilistic assessments of assets or portfolios in terms of economic performance to facilitate mergers and acquisitions (M&A) activities, improve field development planning and decision making for E&P companies. K&F offers due diligence and techno-commercial advisory for the oil and gas industry. The asset evaluation services provide independent guidance regarding the current and future value of oil and gas fields. This includes the optimisation of field development scenarios to maximise the asset's profitability and assistance to decision and risk analysis considering exploration and appraisal activities. K&F has a strong background in the upstream consultancy business and works with a team of seasoned associates covering all relevant E&P disciplines with deep technical knowledge, extensive work experience and geographic exposure. Proprietary technologies constitute the basis of K&F's core services. These are summarised in the following figure: K&F's CORE SERVICES Portfolio Management Asset Development and Optimisation Asset (e)valuation Asset Performance Review Insight Reservoir Fluid System Reservoir Reservoir Volumetrics Diagnostics Reservoir Predictive Toolbox Techno- Commercial Simulator Insight K&F's TECHNOLOGIES Services and technologies overview Highlighted ones are invoke techno-commercial simulation. The simulator drives a wide range of K&F services, covering valuation of oil and gas assets, technical and financial risk analysis, financial negotiation support, and decision and risk analysis on a field, block or portfolio level. It supports any application areas where fast and prudent decision making is crucial. This document has been prepared for marketing purposes only. K&F is acting in an advisory capacity only and, to the fullest extent permitted by law, disclaims all liability for actions or losses derived from any actual or purported reliance on this document (or any other statements or opinions of K&F) by the client or by any other person or entity. 1 of 6

2 Application Areas Techno-commercial simulation allows to assess the current and the future value of oil and gas properties. Combining latest proprietary technologies with substantial in-house expertise facilitates a wide range of analysis, catering for M&A activities, field development optimisation and portfolio related assessments with multiple assets. M&A. A primary focus of techno-commercial simulation is to support technical and commercial teams during M&A activities, e.g., in facilitating: t Oil and gas asset valuations, including producing/developing assets and exploration blocks/acreage, t Data-room assessments (screenings/evaluations) and bid preparation, t Technical and financial risk analysis of transaction including technocommercial due-diligence, t Financial negotiation support to optimise bid parameters. Field Development. For asset planning, field development and optimisation it is the tool of choice for: M&A Support Asset Valuation Concept Screening and Selection t Conducting the general framing, concept identification, screening and selection workflow as part of the conventional hydrocarbon resource maturation process, t Optimising development concepts in low oil price environments and supporting field development activities throughout detailed design up to final investment decision (FID), t Driving area development planning (ADP) and exploration through decision and risk analysis (D&RA) to enable performance improvement in complex integrated development projects, t Facilitating renegotiation of Production Sharing Contracts (PSC) and other commercial frameworks as part of a D&RA process. Portfolio Management. It is possible to build models of an entire portfolio comprising multiple assets, enabling: Decision and Risk Analysis Area Development Planning Asset Planning Portfolio Management t Portfolio assessment in producing and developing fields to (i) benchmark asset performance based on commercial Key Performance Indicators (KPI), (ii) optimise divestment strategies, (iii) enhance capital allocation efficiency, and (iv) to determine the potential impact of competitive scoping, t Decision and risk analysis on portfolio level to, among others, minimise risk profile and exposure, determine optimum development strategies across the portfolio, prioritise exploration commitments and prospects and maximise utilisation of shared infrastructure. Application areas for Techno-Commercial Simulation 2 of 6

3 Asset Models & Scenario Analysis The simulator works on the basis of scenarios. After defining the scheduling, the production and the expenditure load along their uncertainty ranges, it treats the scenarios as discrete asset models with the fully probabilistic assessment conducted by an in-house Monte-Carlo solver. A scenario can comprise any number of phases or stages, including conditional actions and decisions, for each asset model. Production can be defined by means of decline assumptions including drilling queues, various built-in analytical models or from external sources such as simulator results. Most frequently used types such as baseline production, production enhancement activities, infill drilling campaigns, IOR/EOR deployment are predefined for fast model set-up. An asset model can be arbitrarily phased. There is full flexibility to define complex relationships between the individual phases in terms of timing and scope, including conditional actions and decisions if required. Facilities constraints such as capacity limits can be taken into account. Expenditure loading comprises capital, operating or any other miscellaneous expenditure. Parametrisation for asset screenings or evaluations can be kept to a minimum using high-level cost block estimates, distributing those automatically over time using pre-defined S-curves. For projects closer to FID level, expenditure can be parametrised alternatively with great granularity. This flexibility allows to allocate expenditure accurately according to the maturity of the scenario. Commercial assessment captures the baseline, standalone project, fully incremental and total asset level economics. The simulator is designed for a wide range of fiscal regimes and terms, from royalty tax, production sharing to risk service contracts. An initial and continuous calibration against the operators reference fiscal model ensures the consistency and accuracy of the fiscal arithmetic and the results. Specific data sets can be selected, extracted and modelled in the client's reference model for maximum coherency and compatibility. Oil Production Rate (Mbopd) Capital Expenditure CAPEX (MM$) After Tax Discounted Cumulative Cash Flow (MM$) Baseline NFA Field A(S) ERD Wells Appraisal & Development Field A(S) Phase 1 Development (WHPP) Field A(S) Waterflooding Main Reservoirs Field B Appraisal & Development from WHPP Field A (ERD) Field A(S) Phase 2 (Infill Drilling) Field A(N) Phase 1 (Stepout Wells Appraisal & Development) Field B Phase 1 Development (WHP) Field B Phase 2 (Infill Drilling) Field A(N) Infill Drilling Baseline NFA Field A(S) ERD Wells Appraisal & Development Field A(S) Phase 1 Development (WHPP) Field A(S) Waterflooding Main Reservoirs Field B Appraisal & Development from WHPP Field A (ERD) Field A(S) Phase 2 (Infill Drilling) Field A(N) Phase 1 (Stepout Wells Appraisal & Development) Field B Phase 1 Development (WHP) Field B Phase 2 (Infill Drilling) Field A(N) Infill Drilling Deterministic production rates, Example Phased Development Scenario Total Asset NPV (% WI) Baseline NPV True Incremental NPV (Asset Level) Economic Limit Baseline: 1-Dec-219 Annualised Capital Expenditure (CAPEX), Baseline and incremental cumulative cashflow NPV, 3 of 6

4 Uncertainty assessment can be conducted for any parameter, including development scope, production, expenditure, timing or fiscal related ones. A wide range of distribution functions is available. Dependencies can be incorporated, for example as tabular lookups to determine the facility scope as function of the uncertain well number. Conventionally available high, mid, low estimates of production or expenditure can be readily converted into a time-dependent continuous distribution function that is suitable for fully probabilistic techno-commercial simulation. Developed in a high performance computing environment, the in-house solver typically runs 5,, discrete techno-commercial models for each scenario within minutes. Probabilistic KPIs are a key deliverable of the uncertainty assessment, which yields a distribution function for any fiscal or production related KPI. It allows to introduce new KPIs into the decision making process, such as the 'Probability of Commerciality, which captures the probability of breaking even. The process generates descriptive statistics, such as expected values, percentiles capturing the upside (P) and downside KPI values (P) or standard deviation for any KPI. Risk and uncertainty analysis comprises the conventional techniques of threshold-, linear or dual sensitivity analysis. However, correlation coefficients derived for the KPI distributions yield a more realistic measure describing parameter sensitivity. They can be generated for any KPI such as NPV, incremental production or CAPEX and allow to identify and focus on key project risks and mitigation strategies. Several other analytical techniques are built-in to analyse the relationship between uncertain parameters, including correlation matrices, composite scaled sensitivities and principal component analysis. Those are specifically tailored for fiscal parameters, e.g., bid parameters, to support M&A negotiations. Oil Production Rate (Mbopd) P P P P P Deterministic Model Baseline Net Present Value NPV Total Asset NPV True Asset Incremental NPV (MM$) Malaysia Total Value Total Asset Baseline 2 MY Value (MM$) NPV (mm$) CAPEX MULTIPLIER Maximum Exposure ME (MM$) Internal Rate of Return Total Asset True Asset Incremental IRR (%) Probabilistic production profiles, Unit Cost Incremental UTC Incremental UDC Unit Cost ($/STB) Profit Investment Ratio Total Asset PIR Incremental PIR - NPV(I)/ME - 1 PIR (%) Probabilistic KPI distributions, IRR (%) PROJECT CAPEX MULTIPLIER Dual sensitivities (OPEX vs CAPEX reduction) for project economics NPV and IRR, General CAPEX contingency Decline Field A(S) main reservoirs Decline ERD Field A(S) WHPP Field A incremental OPEX Decline WHP Field B main reservoirs Baseline production risk Decline A&D A(S) deeper reservoirs WHP Field B incremental OPEX First Oil from WHPP Field A(S) (month) Number injectors WHPP A(S) main reservoirs First Oil WHP Field B (Month) Offtake wells Field B deeper reservoirs Rampup time Field A(S) waterflood Decline infill wells for A(N) Decline ERD well for Field B A&D Value Decrease Correlation Coefficient.2.28 Value Increase Significance Boundary. Oil price variability Offtake Field A(S) main reservoirs Number ERD wells Offtake WHP Field B main reservoirs Offtake A&D A(S) deeper reservoirs Offtake ERD wells Field A(S) Number producers WHPP A(S) main reservoirs Offtake wells A(N) main reservoirs Number wells A(N) main reservoirs Number producers Field B main reservoirs Peakoil Field A(S) waterflood Number infill wells for A(N) Offtake infill wells for A(N) Decline rate Field A(S) waterflood Incremental well OPEX Number ERD for A&D A(S) deeper reservoirs Number producers Field B deeper reservoirs Decline wells Field B deeper reservoirs Offtake ERD well for Field B A&D Decline wells A(N) main reservoirs Correlation coefficients for project economics NPV, 4 of 6

5 KPI Summary provides a simple mean to summarise the performance of a potential development scenario, or the value of an entire asset, in a single 'traffic light. The colours green, yellow, red are defined as per the operators screening criteria and objectives. Scenario Analysis is a powerful tool if multiple development or investment opportunities are benchmarked as part of a concept screening and selection. KPIs of the individual scenarios can be visually and statistically benchmarked for specific sanction or decision criteria. Results from the techno-commercial simulator can be readily exported to Microsoft Excel or other external data analytics packages such as Tableau or Spotfire. The probabilistic framework introduces the Performance Index, defined as ratio of expected NPV (EMV) and its standard deviation. The KPI allows to screen for projects that maximise the economic return at the lowest uncertainty using 'efficient frontier based workflows, thus choosing investments with the lowest amount of risk at any targeted level of return. Techniques and approaches described above for single assets can be readily extended if multiple assets are present for co-development that show some degree of dependency. StandardDeviationofEMV (mm$) FieldD FieldD FieldD ProspectY Probabilistic KPI distributions, ExpectedMonetaryValue(mm$) FieldE FieldD FieldD Reserves(mmstb) Theme StrategyA StrategyB StrategyC StrategyD Efficient Frontier application (EMV vs. standard deviation), Example Concept Screening Data Requirements. The level of details required for the parametrisation generally depends on the maturity of the hydrocarbon resource and the asset status. The parameter set can be derived as part of conventional asset screening and evaluation workflows which can be drastically sped-up by K&F 's proprietary technology such as the Asset Performance Review. Scheduling and expenditure estimates typically originates from cost blocks provided by the development teams. If not available, these can be based on technical input generated through in-house costing software and experience from K&F 's associates. Fiscal parameters such as general contract mechanisms and taxation parameters are publicly available in many cases, and can be further customised according to actual contracts if available. Time Line. Designed with a high degree of efficiency and automation of the process, K&F can offer technocommercial services with fast turnaround time. The range of analysis techniques and algorithms are continuously expanded and further optimised. Delivering state of the art technological solutions and services is a main business principle of K&F. 5 of 6

6 Optimisation Capabilities Unlike spreadsheet Techno-Commercial applications, the Assessment simulator is built around a high-performance computing environment with industry grade Predictive technology and Optimization optimisers. Furthermore, Capabilities the framework utilises techniques developed for history matching, particularly regarding the risk and uncertainty framework but also for optimisation. Predictive Techno-Commercial Assessment Optimisation Methods Linear sensitivities of individual parameters Multivariate analysis Fully probabilistic analysis Deterministic Optimisation Fully Probabilistic Optimisation 214 KOSTRO&FRIEDEL Pte Ltd. All rights reserved. Application Deliverables Objective Benefits Analyse how changes in a single parameter will impact results (one parameter is changed at a time) Tornado Charts and Spider plots KOSTRO & FRIEDEL Analyse complex relationships between 2 or more uncertain parameters Advanced 3D/4D visualization Advanced statistical presentation incl. PCA, Correlation Matrices, sensitivity index Analyse and improve risk profile by covering full range of possible outcomes (using Monte Carlo on a large number of fully discrete asset models) Fully probabilistic production, cost and cash flow profiles Distribution functions for any KPI Tornado & Pareto Charts M&A Support FID Support Asset & Portfolio Management Asset Screening Concept Screening Asset Planning Asset (E)valuation Concept Selection Performance Benchmarking Commercial Negotiation Support Risk Quantification and Mitigation Performance & Efficiency Improvement Determine the optimum set of parameters under uncertainty to improve single or multiple KPI s Set of parameters including statistical representation (e.g., confidence intervals) FID Support Concept Optimization Determine the optimum set of parameters that maximise the probability of achieving single or multiple KPI s Set of parameters including statistical representation (e.g., confidence intervals) Portfolio Management Capital Allocation Portfolio Optimization Risk Quantification and Mitigation Typical main analysis conducted using common spreadsheet based techno-commercial models Simulation capability 35 summary. The techno-commercial simulator enables sophisticated, fully probabilistic assessment of individual assets or a portfolio of assets in terms of the economic performance to optimise investments (M&A), Field Development Planning and general decision making for E&P companies. It is heavily leveraged by parallel computing and allows for running a large number of discrete, yet fully parametrised development scenarios with a short turn around time. Entire portfolios can be modelled. The benefits can be summarised as follows: t Builds complex field development scenarios with dependencies and constraints, t Models comprehensive fiscal capabilities (including incremental economical evaluation), t Analyses and optimises KPIs fully probabilistically, t Enables sophisticated risk and statistical analysis, t Leaves an audit trail and ensures repeatability of results, t Allows data export/exchange of full data sets into Excel. Kostro&Friedel Pte. Ltd. Offices in Hamburg, Germany Kuala Lumpur, Malaysia Contact details for Kostro&Friedel Pte. Ltd. mail@kostro-friedel.com 6 of 6