Valuing and measuring the performance of an oil and gas company involves industry-specific complexities because financial accounts alone provide a poor representation of value added. Company valuation is determined both by existing assets and by potential exploration projects. Therefore professionals in this sector are required to have a clear understanding of performance measurement and how to reflect it in their corporate models and valuations.

Whether to appraise potential investments, IPOs or M&A transactions, robust financial models of assets and techniques to value commercial reserves, uncommercial reserves and exploration opportunities are required. Corporate valuation models take the form either of 'liquidation models' or of 'going concern models' and an understanding of the implications of both approaches is essential. This Euromoney Training course will provide the necessary skills and knowledge to conduct accurate assessments for the purpose of investment or acquisition in this sector.

How will this course help you?

This 4-day course provides the necessary practical skills to model and value oil and gas companies, from the perspective of an investor, an equity analyst or as part of a corporate transaction, you will:

• Model oil and gas assets and consolidate them into corporate accounts.
• Interpret disclosures relating to reserves, exploration and downstream inventory.
• Adjust the cost of capital for the effects of political risk and hedging.
• Adapt standard DCF, modified EVA and CFROI routines to the valuation of integrated oil companies.
• Understand the drivers to and the techniques to appraise M&A activity.

Who Should Attend?

The course is designed for those working in the oil and gas sector:

• Energy Investment Bankers
• Corporate Planners and Strategists
• Equity Analysts
• Investors
• M&A Accountants and Lawyers
• Credit Analysts

Supported by:

Day 1

Registration commences at 8:30
Programme runs from 9:00 - 5:00 daily

Economic Overview

Oil and gas industry economic background

• Demand, supply and reserves.
• Prices and margins.
• Transport, trade and markets.
• State vs. private oil companies.
• Reserve definitions and categories.

Commercial oil and gas assets

• Introduction to upstream tax structures.
• Introduction to upstream asset models.
• Linkage between asset models and corporate accounts.
• Accounting for joint ventures and associates.

Case study: review and complete simple tax / royalty and production sharing contract field models and linkage to company accounts.

Technical reserves and exploration acreage

• What are technical reserves?
• Application of real options analysis to out-of-the-money assets.
• Problems applying financial option models to real assets.
• Exploration programmes and probability trees.

Case studies: an option model is used to value an asset comprising technical reserves and acreage is valued by applying probability trees to a programme of exploration and appraisal.

Exploration and production companies

• Economic features of exploration and production companies.
• Reserve replacement and performance measures.
• Full cost vs. successful efforts accounting.
• SEC supplementary oil and gas reporting.
• Modified return on capital employed.

Case study: SEC returns for an upstream operation are analysed to determine corporate upstream performance and modified profitability.

Day 2

Exploration

• Exploration company forecasting.
• Linking barrels to dollars.
• Capital expenditure, replacement costs and reserve replacement.
• Reserve life and production profiles.
• Fixed assets and depletion.

Case study: complete a financial forecast for an exploration and production company.

Cost of capital for the oil and gas industry

• Review of CAPM and implications for oil and gas.
• Implications of financing for oil and gas discount rates.
• International vs. local: what currency to use.
• Hedging policies and their implications for the cost of capital.
• Interpretation of accounting for derivatives.
• Adjusting for political risk.

Case study: review the cost of capital for a case study company.

DCF valuation of upstream companies

• Review of unleveraged free cashflow.
• Standard approaches to terminal value.
• The value driver approach to terminal value.
• Liquidation models and reinvestment upside.
• Reserve replacement approach to exploration company corporate DCF.

Case study: review a standard corporate DCF model, then apply an oil specific approach to a case study company.

Day 3

Adding Value

• Forecasting integrated oil companies.
• Modelling downstream businesses.
• Volumes, margins and returns.
• Consolidating segment forecasts.

Case study: review and complete a consolidated forecast of an integrated oil company.

Economic value added: performance and valuation

• Introduction to EVA.
• Calculation of annual EVA.
• Terminal value EVA in corporate valuations.
• Reconciliation of EVA with value driver DCF terminal value.
• Modified EVA and the oil and gas industry.
• EVA and exploration prospects.

Case study: produce reconciling DCF and EVA valuations for a case study company and review an EVA based approach to valuing exploration upside.

Cashflow return on investment: CFROI

• Introduction to cashflow return on investment.
• Application of CFROI to oil and gas company performance measurement.
• Application of CFROI to oil and gas company valuation.
• Advantages and disadvantages of CFROI vs. other approaches.

Case study: analyse an integrated oil company using a CFROI-based performance and valuation model.

Day 4

Mergers and Acquisitions

• Multiples and comparative company analysis.
• Introduction to performance and valuation metrics.
• Applying DuPont analysis to oil and gas companies.
• Enterprise value vs. equity value metrics.
• Cashflow vs. profit metrics.
• Oil specific metrics.

Case study: a comparative company analysis is used to explain relative share prices for a universe of oil companies.

M&A

• Rationale for and history of M&A transactions.
• Examples of oil and gas transactions: what drives.
• Success or failure?
• Estimating and quantifying synergies.
• Accounting for mergers and acquisitions.

Case study: calculate pro-forma financial leverage and EPS accretion / dilution for a potential acquisition.

M&A exercise: the session will be devoted to a team exercise in which a corporate deal will be analysed and conclusions presented to the group.

Course summary and close.

• Nick Antill

  Nick Antill read Economics and Politics at Bristol University and began his career in the oil industry, working for BP and Saudi Aramco. He subsequently transferred to the financial services industry, spending 16 years as an equity investment analyst, specialising in oil and gas companies. He was responsible for the European oil and gas research teams for a number of investment banks, notably ABN AMRO Hoare Govett, BZW and, finally, Morgan Stanley, where he worked during the latter part of the 1990s.
  
  At Morgan Stanley, he was personally responsible for writing investment research on the European integrated oil majors and for marketing it to investment institutions globally. This period coincided with a dramatic concentration of the industry, via wide-spread mergers, in which Morgan Stanley was a prominent advisor. Nick’s team wrote extensively on the drivers to corporate activity and its likely consequences.
  
  He has co-authored, with Robert Arnott, ‘Valuing Oil and Gas Companies’ (Woodhead Publishing, 1994 & 2000), an introduction to the oil and gas industry for financial professionals which focus on measuring company performance and deriving stock market values. He also co-authored, with Kenneth Lee, ‘Company valuation under IFRS’ (Harriman House, 2005 & 2008), a comprehensive introduction to techniques for company forecasting and valuation, along with the interpretation of financial statements published together with the International Financial Reporting Standards. It has also been translated into Russian.

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Oil & Gas Valuation

Interested in holding this course in-house? Please fill out your details and a member of our team will be in touch with more information.

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