[quote='Tusker' pid='79382' dateline='1487007648']
Building a green field LNG project is a capital intensive endeavor Say 17-19B USD investment in decades long production is a formable task. Projected ROI is part of the equation. Future revenue is a significant consideration. What to base it on? One measure is Barrel of Oil Equivalent over the life of the project.
Let us use 50.00 USD a barrel Brent as a bench mark. A 6 TCFE consideration would produce a value of consideration in the range of 50B USD for Elk/Antelope.
The 6.25 TCFE is the P10 average of the five estimates of the appraisers.
InterOil currently holds a 36.375% interest in the field. Compute the percentage and you arrive at 18,187,500,000.00 Billion USD.
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Your math is good up to a point. Reserves are approximately 6TCFE, or 1 Billion BOE. IOC’s share is 364 MMBOE. Your capital costs are a little low, but let’s say $ 20B. IOC’s share is $7.3B. So far so good, but now put some time on it.
First production is planned to occur in 2023. To keep it simple, make the following assumptions:
capital is spent evenly over the next 6 years – $ 1.2B/yr.
Production is even over 20 years – 18 MMBOE/yr
Expense takes 10% of revenue
Oil price is $50/BOE today, rising at 5%/yr
Oil Cash Present
Yr Price Prod. Revenue Cost Flow Value
MMB $MM $MM $MM at 10% at 12%
2017 50 1200 -1200 -1091 -1071
2018 53 1200 -1200 -992 -957
2019 55 1200 -1200 -902 -854
2020 58 1200 -1200 -820 -763
2021 61 1200 -1200 -745 -681
2022 64 1200 -1200 -677 -608
2023 67 18 1206 60 1146 588 518
2024 70 18 1266 63 1203 561 486
2025 74 18 1330 66 1263 536 456
2026 78 18 1396 70 1326 511 427
2027 81 18 1466 73 1393 488 400
2028 86 18 1539 77 1462 466 375
2029 90 18 1616 81 1535 445 352
2030 94 18 1697 85 1612 425 330
2031 99 18 1782 89 1693 405 309
2032 104 18 1871 94 1777 387 290
2033 109 18 1965 98 1866 369 272
2034 115 18 2063 103 1960 352 255
2035 120 18 2166 108 2058 336 239
2036 126 18 2274 114 2161 321 224
2037 133 18 2388 119 2269 307 210
2038 139 18 2507 125 2382 293 197
2039 146 18 2633 132 2501 279 185
2040 154 18 2764 138 2626 267 173
2041 161 18 2903 145 2757 255 162
2042 169 18 3048 152 2895 243 152
2043 178 18 3200 160 3040 232 143
Total 378 2839 1221
Pres. value for 50MM sh. per share: $57 $24
Now you can argue all day long about the assumptions, timing and reserves, but clearly, assumptions matter when you're buying a future income stream. The most important elements, because this is a decades long project, are the discount rate. and reserves. My company used 15% in the US; 25% in the third world. I know Exxon used, many years ago, 8-10% in the US., but surely more in a place like PNG. At 15%, the present value is negative. It does point out why a green field plant is virtually a non-starter.