FWIW...Morocco14 Oct 2021 17:34
Afternoon
good posts re values...thanks Keith /all
FWIW ...as many here will know...
NPV10 (or any other % discount rate you care to nominate) is useful ...
to decide if an investment is likely to yield a good reward
and then to compare one investment’s potential return ...against other investments
BUT...
It is not really that helpful when looking to ascertain absolute values of assets...
ie what would someone else pay to buy the asset?
It is one component used in the ‘funnel of elimination’ ...
ie when seeking to work out ...early on ...which opportunities to focus on
The actual sale value (of an E&P asset)
will depend on many things... including the running room/geo politics
And the level of /nature of the market into which gas/oil is being sold...
IE is it going into a market of increasing demand ?
and is that demand likely to stay high/become higher?
LOADS of other factors...can be several hundred in complex scenarios
(my view was always ...if it’s that complex, I will buy something else)
But ‘running room’ is very high on the list...
As it is the very big way for buyer/s to increase their own % rate of return ...by proving more resource
Buy one get one free?
I have banged on for ages about HYDROCARBON ENERGY levels (essentially simplified in my lexicon as : Porosity x Permeability x Charge)
Nobody has much appetite for turgid old fields where abstraction is hard and expensive...the World is littered with those
NO...buyers want fields where nature ‘does its bit’ !
by providing high levels of assistance...
IE areas of high HYDROCARBON ENERGY levels...
often such fields exhibit high pressures...
the hydrocarbons being keen to escape their original home!
In the financial examples you have seen, there has been consistent assumptions of initial flow rates and decline rates
Hmmm
Now...WHAT IF the NPV10 value is recalibrated/ enhanced
by a much greater productivity per well????????????
Due to the front end loading of the calculation, the derived values escalate very quickly
($1000 today ?
or in say 5 years time ...
at 10% discount rate. that $1000 is only worth about $620)
now load up the front end of the inbound cash flow but keep costs under control
Commercial ‘Magic’ then ocurs
What if the decline rate (see RNS of 18 March ) is actually much slower...
due to high energy levels (extensive permeability / porosity/charge)
Why not all run through the info we already have on Guercif?
Its very extensive and sort of eye watering
Watch this space
I am here for Morocco
Yes, I could be wrong this time
Regards
GRH
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