Majithia, Vipasha Manish (2017-08). Valuation and Stress Analysis of Exploration and Production (E&P) Shale Assets. Master's Thesis. Thesis uri icon

abstract

  • Shale oil and gas exploration and production (E&P) projects differ in many aspects from the projects with traditional reservoirs. These differences are reflected in the key aspects of the project, ranging from technical analysis of the drilling location and schedule, equipment selection and site logistics operations, as well as production decline including reserve analysis, to more financial analysis such as payback periods, discounted cash flow model, including net present value analysis, production growth versus investment, debt service coverage ratio and financial stress analysis (using RiskAMP Excel-Add-in). This study provides with a holistic valuation model especially for exploration and production (E&P) shale assets which takes into account the risks associated with differences between conventional and unconventional reservoirs and their resulting financial impacts. The risks due to differences between the conventional and unconventional reservoirs is accounted for by including different production decline models i.e. hyperbolic, harmonic, exponential, and stretched exponential. Their financial impacts are accounted for through cash flow analysis and revenue growth per investment analysis. The net present value of these cash flows is also tested for delayed drilling, and variable interest rates. In order to determine the borrowing base amount in case of a reserve based lending, debt service ratios have been determined. A stress analysis has been performed using the RiskAMP Excel add-in with variable oil and gas prices, cost of drilling and completion, initial production, initial decline rates, and correlation between oil and gas prices and cost of drilling and completion, and that between initial production and initial decline rates. In addition to this it also accounts for the risks associated with low production growths, early declines and late paybacks of shale oil and gas reserves.
  • Shale oil and gas exploration and production (E&P) projects differ in many aspects from the projects with traditional reservoirs. These differences are reflected in the key aspects of the project, ranging from technical analysis of the drilling location and schedule, equipment selection and site logistics operations, as well as production decline including reserve analysis, to more financial analysis such as payback periods, discounted cash flow model, including net present value analysis, production growth versus investment, debt service coverage ratio and financial stress analysis (using RiskAMP Excel-Add-in).

    This study provides with a holistic valuation model especially for exploration and production (E&P) shale assets which takes into account the risks associated with differences between conventional and unconventional reservoirs and their resulting financial impacts. The risks due to differences between the conventional and unconventional reservoirs is accounted for by including different production decline models i.e. hyperbolic, harmonic, exponential, and stretched exponential. Their financial impacts are accounted for through cash flow analysis and revenue growth per investment analysis. The net present value of these cash flows is also tested for delayed drilling, and variable interest rates. In order to determine the borrowing base amount in case of a reserve based lending, debt service ratios have been determined. A stress analysis has been performed using the RiskAMP Excel add-in with variable oil and gas prices, cost of drilling and completion, initial production, initial decline rates, and correlation between oil and gas prices and cost of drilling and completion, and that between initial production and initial decline rates. In addition to this it also accounts for the risks associated with low production growths, early declines and late paybacks of shale oil and gas reserves.

publication date

  • August 2017