Barrel Oil Equivalent (BOE) Missing ?

[Tusker]

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.  

I find it curious that amount is mid the investment cost of the LNG Project.  Is the ROI/Future Revenue on the acquisition of IOC cover the cost of building?  

Back to the value again.  I am sure I must be missing somthing...so let me discount that 6 TCFE and Value by 50% Now we have 9,093,750,000.00 Billion USD.

Now, I will double down again... lets reduce by another 50%.  Now we have 4,546,875,000.00 Billion USD.  Now by the amount of shares and....?

P10 with double 50% reductions brings us a share value of 90.9375 USD.  Looks and sound familiar does it not?  

Barrel Oil Equivalent appears to be a important measure.  So much so that ExxonMobil uses it when discussing corporate performance with their shareholders.

Exxon Mobile Annual Report 2015

If you take the time to read the above report you will find close to 15 mentions of Barrel Oil Equivalent.

My favorites are the mention specifically

 show as 'Highlights For Shareholders'. Of the seven highlights, two mention 'BOE"

* Proven oil and natural gas reserves(1) additions of 1.0 billion oil-equivalent barrels

* Completed six major Upstream projects with working interest production capacity of almost 300 thousand oil-equivalent barrels per day, highlighted by two deep water projects offshore West Africa and an expansion  of the Kearl development in Canada.

Highlight: Developing a World-Class Resource

We have produced 1.8 billion oil-equivalent barrels from Angols's Block15 since 2003, driven by seven major project start-ups.

Discussion of Barrels Oil Equivalent is clearly established as a measure of performance and value for shareholders of Exxon-Mobile.

Exxon-Mobile also mentions its total reserves in (BOE) of 91B for proven,probable,and possible.

(BOE) is also specifically mention in the "Assets" section of the financial report.

How about for InterOil Shareholders ? Lets take look at the Management Information Circular produced by IOC Management.

I saw one line that mentioned the 6,000 CBFT of Nat Gas equals 1 barrel of oil at the burner tip. And that was all folks.

Appears to me that XOM is very happy to talk to their shareholders regarding (BOE) and not at all happy to talk with InterOil shareholders about (BOE).  Why is that you may ask?

Optics

This is the classic Emerald City of Oz frame.  Recall those who lived in the city were required to wear glasses with green lenses.

What XOM and IOC have done is to dim or shade out a very important conversation regarding the value of IOC.  i recommend that the tinted classes be taken off, and gasses with magnification and clarity be  tried.

Quote PM CC this week:  '...material value not addressed'

I agree.

 

[Northoil]

[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.  

_________________________________________________________

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.