Course description
Oil and Gas Valuation
Analysis and valuation in the energy sector is complicated by its division into three main segments – “upstream” exploration and production (“E&P”), “midstream” gathering and transmission, and “downstream” refining and marketing. The sector also has unique and highly industry-specific “metrics” for performance measurement and valuation. Finally, substantial changes in organizational forms – especially the division of E&P from midstream and downstream assets, and the further organization of “pure-play” gathering/transmission assets – are a further challenge.
In appraising potential E&P investments, IPO opportunities, or M&A situations, a familiarity with reserve modeling is critical. Cashflows must be modeled so as to reflect the differing natures of developed vs. non-developed, producing vs. non-producing, and proven vs. probable and possible reserves. Non-production “hard assets” and unexplored production acreage also need to be included in any valuation. Cashflow models reflecting these differing assets, and which break down value into “going concern” vs. “liquidation” scenarios”, are invaluable in making analytical judgments.
Moreover, the breadth of the sector requires an understanding of the valuation of “midstream” and “downstream” assets. Investors are increasingly expressing strong preferences for “pure-play” exposures, and such assets can have very attractive sustainable cashflow characteristics, which can be utilized to fund “upstream” activities. Comparable firm and comparable transaction analysis is critical in this area.
Upcoming start dates
Who should attend?
Who Should Attend?
- Energy investment bankers
- Sell-side securities analysts
- Buy-side portfolio managers
- Sovereign wealth and pension fund analysts
- Corporate planners and strategists
- Credit analysts
- Accountants and lawyers working with energy clients and transactions
Training content
Topic 1: Analysis and Valuation of Reserves and E&P Companies Using DCF and NAV
- Energy Assets: Upstream vs. Midstream vs. Downstream
- ‘Gassy” vs. “Oily” Assets
- Definitions: Proven Producing vs. Proven Not Producing vs. Probable vs. Possible Reserves
- Production Level Assumptions
- Extraction Cost Assumptions
- Output Price Assumptions
- Capital Expenditure Assumptions
- Depletion and Depreciation
- Determining the Discount Rate
- Estimating a Residual or Terminal Value
- Liquidation or “Blowdown” Approach to DCF Modeling and Valuation
- Reserve Replacement Approach to DCF Modeling and Valuation
- Possible Reserves as “Real Options”
- A Key Question: How Much of a Reserve Base Should an E&P Company Maintain? A “Rule-of-Thumb” with Theoretical Justification
Topic 2: Analysis and Valuation of Reserves and E&P Companies Using Comparable Firm Metrics and Operational Metrics
- E&P Firms:
- Finding Costs, Success Rates
- Measuring Returns to Capital: ROIC vs. CFROI
- Nature of the Reserves and Impacts on Valuation: “Gassy” Firms vs. “Oily” Firms and the Impact of the Relative Prices of Oil and Natural Gas
- Identifying the Peer Group: “Dimensions of Comparability”
- Two Key Issues:
- Political Risk: Geographic Location of Reserves?
- Economic Risk: Cost and Feasibility of Extraction?
- How to Measure Performance and Valuation: Valuation Metrics
- Energy Sector Highlight: Depletion and Depreciation
- Full-cost vs. Successful Efforts Accounting
- Cashflow Metrics
- Price/Cash Earnings
- EV/DACF
- EV/EBITDA
- EV/EBITDAX
- Dividend, DACF, and EDITDA Yields
- Price/NAV
- An Alternative: Operational Metrics
- EV/Proven Producing Reserves
- EV/Proven Producing and Proven Non-Producing Reserves
- EV/Proven Producing, Proven Non-Producing, and Probable Reserves EV/Proven Producing, Proven Non-Producing, Probable, and Possible Reserves
- EV/Barrel vs. EV/MCFE vs. EV/BOE
- Conventions for Valuing Associated Fixed Assets
- Sum-of-the-Parts Analysis
- Capital-sourcing for E&P firms
- Credit Issues for E&P assets
Topic 3: Upstream MLPs and Royalty Trusts
- No Replacement: Upstream Assts as “Wasting” Assets
- Royalty Trusts vs. Production Master Limited Partnerships
- “Fire-and-Forget” Production Assets as Yield Plays
- Cashflow Metrics
- Distribution Yield
- Price/Earnings
- Price/Cash Earnings
- Price/Distributable Cashflow
- EV/EBITDA
- Price/Book Value
- Residual Values
MIDSTREAM MODULE: Day 4
- The Pipeline Master Limited Partnership Revolution
- The Role of Leverage in MLPs
- Cashflow Metrics
- Distribution Yield
- Price/Earnings
- Price/Cash Earnings
- Price/Distributable Cashflow
- EV/EBITDA
- Price/Book Value
- Transmission Assets as “Infrastructure Private Equity” – Inflation Hedges
- Partnerships Structures: GPs vs. LPs, Incentive Agreements
- Capital-sourcing for MLPs
- Credit Issues for MLP assets
DOWNSTREAM / M&A MODULE: Day 5
- Traditional Pure Play Refiners and Marketers
- The Break-up Wave: Marathon, Conoco, Hess, Occidental Petroleum
- Cashflow Metrics
- Price/Earnings
- Price/Cash Earnings
- EV/EBITDA
- Price/Book Value
- Sum-of-the-Parts Analysis
- Refining and Marketing Assets as “Infrastructure Private Equity” – Inflation Hedges
- Environmental Rectification Liabilities: A Big Potential Headache for R&Ms
Bringing It All Together: M&A in the Energy Sector
- E&P vs. Midstream vs. R&M Assets
- Sum-of-the-Parts Analysis
- DCF Valuation in M&A
- Comparable Firm Analysis in M&A
- Comparable Transaction Analysis in M&A
- Operational Metrics in M&A
- Accretion and Dilution and Credit/Funding Issues
Costs
Course fee: £5295+VAT
Certification / Credits
The course will cover:
- The contract matrix in the oil & gas industry
- Key agreements and examples of those agreements
- The relationship matrix from a contractual and a corporate perspective
- The legal principles that shadow relationships
- Specific issues affecting relationships
Why choose Euromoney Learning?
4.6/5 rating on course check for service
60,000 professionals trained across public courses
80+ countries where training is delivered
Contact this provider
Euromoney Learning
At Euromoney Learning, we understand that learning doesn’t start and end when you leave the classroom. We know that the financial markets never stand still, and that technology has both simplified and added complexity at a break-neck pace. That’s why...