Evaluate investment proposals through the application investment appraisal techniques, to support investment decisions under uncertainty

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Qatar Petroleum, Anadarko Petroleum Corporation and EOG Resources Ltd. 

MSc Oil and Gas Management

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Module Learning Outcomes Assessed:

  1. Analyse the sources and types of financing for oil and gas companies and appraise and classify the risks and challenges of the sources and types of financing
  2. Analyse current practices, rationale and challenges of joint venture/ joint operating agreements in the oil and gas industry.
  3. Evaluate the operational performances of the upstream segment of integrated oil and gas companies through an application of established techniques used in industry – field level Analysis only.
  4. Evaluate investment proposals through the application investment appraisal techniques, to support investment decisions under uncertainty

Tasks and Mark distribution: Answer all 3 Problems/ Questions
You have been hired as an Analyst by Petrol Business Consulting, a consultancy firm that specialises in investment and financial advisory services for oil and gas companies. It is a busy time for your new company and as an MSc Oil and Gas Management graduate with training in investments analysis and decision making in the petroleum industry, your line manager has chosen you over other Analysts to advise three (3) clients; Qatar Petroleum, Anadarko Petroleum Corporation and EOG Resources Ltd.

As part of your analysis you are expected to:

Produce a report for each client to address their problem and provide them a strategic direction on the basis of well researched literature/ analysis and accurate quantitative evidences, where appropriate. It is expected that your answer will clearly evidence your understanding of the problems/ need facing each client and subsequently include a research and justify a range of the solutions that would enable each client address their needs.
This is an academic work and it is expected that your answer will include plenty of relevant related literature as well as industry material/ evidences and examples where relevant.
Please perform and show all workings (append large files to the report), summarise results of all numerical analysis and alternatives and thoroughly analyse and evaluate your results before putting them forward as recommendations.
Further guidance will be available during lectures
Word Limit: Each report MUST be no more than 1,350 words. You will be penalised if you exceed this limit. Please refer to NOTE 6 below on Word Limit for further information.

Problem/ Question 1: Qatar Petroleum:
Strategic Growth Plan: To become one of the best national oil & gas companies in the world, with roots in Qatar and a strong international presence.
Qatar Petroleum
has shortlisted several Big Oil firms willing to buy a stake in Qatar’s mega project to expand its liquefied natural gas (LNG) export capacity, and will look at what the majors could offer in exchange for a piece of the project, the head of the Qatari state-held company told Reuters in an interview published on Monday 9th Sep 2019.
Qatar has announced plans to increase its LNG production capacity by 43 percent—from 77 million tons annually now to 110 million tons a year. The new export capacity includes expansion projects set to be completed in 2024. Qatar will be competing with Australia and the United States over the next few years for the world’s top LNG exporter title.
Qatar has already sent to international oil companies, invitations to bid on the mega project, and if it decides to do it with partners, it will announce the decision in early 2020, Saad Sherida Al-Kaabi, Minister of State for Energy Affairs and president and chief executive at Qatar Petroleum, told Reuters.
We like the partnership model for many benefits. But because we don’t need the partners, what’s going out is basically a set of criteria that we have, to demonstrate to us what added value we get for Qatar if you come in,” Kaabi said, noting that the companies could be willing to give Qatar stakes in projects or upstream developments outside Qatar in exchange for a stake in the Qatari LNG expansion.

Your Task:
In line with the strategic direction of the company, recommend suitable funding options available to the company for the LNG expansion project.
Note: You are expected to review and evaluate the various funding vehicles for LNG projects, recommend and justify how your proposal meets the objectives of Qatar Petroleum for this project. (20 marks)

Marks Allocation and Guidance
Review of LNG project financing vehicles and their structure – 10marks
Critical comparison and evaluation of funding structures and justification of recommendations in the light of QP’s strategic growth plan – 15 marks
Find the News Articles here

Problem/ Question 2: Anadarko Petroleum Corporation (40 marks)
client is Anadarko Petroleum Corporation (NYSE: APC), a mid-sized independent oil and gas exploration and production company. Headquartered in the Woodlands, SPD Montgomery County, Texas, Anadarko has been relatively successful in developing small offshore fields for the past 20 years.
With major areas of operation located in the United States, the deepwater of the Gulf of Mexico and Algeria, Anadarko also has exploration and/or production in Alaska, China, Brazil, Ghana, Indonesia, Mozambique and several other countries.
The Board of Anadarko has just set an ambitious goal for the next five years: To be the largest oil and gas producer in Asia by the end of 2024. A quick industry scan reveals three major competitor companies (see Table 1) that are larger than the client. To support its aspirations, our client decides to purchase Minyak-5, a large deepwater oil field offshore Indonesia.
Anadarko Petroleum Corporation’s CEO has retained PBC, the consultancy company you work for, to do a diagnostic of the company’s current portfolio, operations and organization to help them understand what they need to do to achieve this goal.
For this exercise, assume the reserve replacement ratio for all companies is 100%.

Additional Information: Table 1. Benchmark Results (million barrels of oil equivalent):


Proven Reserves

Annual Production

Competitor A: PetroChina (largest in Asia)



Competitor B: Petronas of Malaysia



Competitor C: Pertamina of Indonesia



Client: Producing Assets



Client: Minyak-5 (newly acquired deepwater asset)



Your Task and Marks Allocation:
a) Explain to the CEO of Anadarko Petroleum Corporation the key factors to consider in order to achieve the goal. Assess the 3 main aspects of the current challenge presented by the goal and advice the strategy to adopt in order to realise the goal. (5marks)
b) How close is APC to achieving its goal of becoming the largest oil and gas producer in Asia? How much will the client need to increase its reserves base by to become the largest producer in Asia? (4marks)
c) How much will APC need to increase production off its post - acquisition reserves base to match best practices? Sketch a graph of current industry practices of production –reserves ratios. (4marks)
d) How much will APC need to increase production off its post - acquisition reserves base to become the largest producer in Asia? Sketch a graph to show at least one way of illustrating the size of the challenge. (4marks)
e) Review and evaluate at least two (2) growth options the client has in order to become the largest producer. (8 marks)
f) Following on from (e) above, and in order to achieve efficiency, suggest and justify which areas you would investigate in order to make a recommendation for your client. (8marks)
g) Justify why you would or would not recommend joint venture as an option for APC. (7marks)

Problem/ Question 3: JP Resources Ltd.
EOG Resources Ltd. (EOG)
, a midsize oil and gas production company based in the UK, is producing crude oil and associated natural gas from one of its offshore platforms in Scotland. The crude oil is transported to the onshore tank farms through a dedicated flow line, after which the gas is stripped at the platform into gas and raw natural gas liquid (NGL). The gas and raw NGL are then transported to an onshore gas processing plant via a 90 Km 24-inch and 12-inch diameter pipelines, respectively. After being in use for 65 years, however, the 12-inch NGL pipeline is old and unreliable lately. This problem has potential to interrupt the operations of EOG in many varying ways. As a result, the company is contemplating ways to minimise the impact on their operations. Currently the following three options are being considered.

Option 1: Spike the stripped NGLs into the crude oil line and sell as crude oil
Option 2: Replace the 12-inch NGL pipeline with a new pipeline of the same diameter. This option has been estimated to cost $35 million. It will take approximately 30 months (starting 01/01/2011) to install the new line. The NGLs will be spiked into crude oil until the pipeline is replaced. The capital cost is phased as 30% in 2011, 60% in 2012 and 10% in 2013.
Option 3: There is a 24 Km portion of the existing pipeline that can be replaced at a cost of $12.5 million. The cost will be allocated 70% in 2011 and 30% in 2012. The replacement will take approximately 18 months (starting from 01/01/2011). It is assumed that once this portion of the pipeline is replaced, it will be operational for a limited period only before another portion becomes defective. The production would be switched onto the spiking option when the pipeline becomes inoperable. For this option, the following are assumed:
Option 3A: There is a 60% chance that the pipeline will be operable for 2 years.
Option 3B: There is a 30% chance that the pipeline would be operable for 4 years.
Option 3C: There is a 10% chance that the pipeline would be operable for 6 years.

Further information:
If transported to a gas processing facility, the raw NGL will be split into ethane (C2) and LPG (C3+). Assume the price of crude oil (net of operating expenses) to be $20 per stock tank barrel (Stb), the price of C2 as $25 per ton and the price of C3+ as $178 per ton.
NB: Apply all probabilities to your NPVs to keep the workings simple.
On the basis on the information above and the resulting production streams for the various options contained in the table below, determine:

Task 1: Determine the Net Present Values for all options – 18 marks
You will be rewarded for your ability to analyse the problem into a clear set of information. You will then be expected to model the problem quantitatively into cash flows that enable decision to be made and solution to be offered to the problem. It is expected that your solution will include accurately calculated cash flow data (this will earn you up to 12 marks). You should then present the resulting decision outputs as NPVs and analyse. This will earn you a further 6 marks.

Task 2: Using expected value theory and on the basis of your answer in (1) above, advise what option EOG should choose. Represent the problem on a decision tree - (10 marks).
You are expected to evidence your understanding of expectation theory through an analysis and a representation of the problem using decision trees. You should correctly calculate and interpret all results and based on the evidences presented, propose a solution to the problem. This will earn you up to 10 marks

Referencing, structure grammatical accuracy (12marks; 4 marks for each report). Note that thus mark applies to all 3 reports/ problems/ questions.
Your report must be consistently referenced and must be coherently written (i.e. well and logically structured)

Resit/ Reassessment
you get less than 40% in the coursework, you will need to re-sit in the next semester.
For the re-assessment of 7144EXQ coursework, you should improve your initial attempt to a satisfactory level using the feedback provided (on CU Moodle). Your resit attempt should address all feedback comments which may include conducting further analysis, incorporating additional literature, strengthening your academic argument and improving the format and/or structure of your work. For re-assessment of the phase test, you will complete a new phase test.

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