PORTFOLIO MANAGEMENT. Creating long-term growth. Dirk-Jan Stegink Upstream International Portfolio Management. Shell Upstream International

Transcription

1 PORTFOLIO MANAGEMENT Creating long-term growth Dirk-Jan Stegink Upstream International Portfolio Management 12/11/2011 1

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3 Agenda: 8:45 Welcome 9:15 Presentation by Ron Hagen; (Executive VP Business Development, Oranje- Nassau Energie) Petroleum Asset Evaluation 10:00 Presentation by Simon Vroemen; (Geoscience Manager, TAQA Energy) Value of Information Methodology: a quantative exercise to support business decisions 10:45 Presentation by Simon Robson; (North Sea Commercial Manager, Schlumberger) Service Company Perspective on Responding to Pricing Signals: allocating resources & technology in a globally competitive environment 11:30 Lunch and opportunity to visit NEMO museum 13:00 Workshop by Ainur Zhumagaleyeva; (Senior Economist, Addax Petroleum Services) Workshop: Field Development Appraisal 16:30 Close out drinks Evening Opportunity for group dinner

4 OVERVIEW Introduction of portfolio management The basis: Project economics The next step: Ranking projects DIY: A practical example

5 FINANCIAL PERFORMANCE AND PRIORITIES EARNINGS PRIORITIES $ Bln PERFORMANCE FOCUS NEW WAVE OF PRODUCTION GROWTH MATURING NEXT GENERATION OF PROJECT OPTIONS UPSTREAM DOWNSTREAM CORPORATE DIVESTMENTS/OTHER CURRENT COST OF SUPPLY EARNINGS

6 MATURING NEXT GENERATION OF PROJECT OPTIONS ADDING NEW RESOURCES EXPLORATION & BUSINESS DEVELOPMENT GoM Cardamom GoM - Vito Norway Fram Canada Groundbirch Australia - Concerto Australia - Arrow US - East Resources GoM South Deimos US - Eagle Ford GoM Appomattox 2010 Australia Iago 2 US - Haynesville Canada - Duvernay GoM West Boreas Brazil Massa Brazil Gato do Matto Australia Libra 1 Australia - NWS Nigeria - Offshore DISCOVERY Brunei - Geronggong ACQUISITION EXPLORATION PROSPECT Kazahkstan - Auezov Brunei ML-J206T1 French Guyana China Tight gas 2011/12 USA - GoM Brunei Alaska Brazil - DW Long-term growth and investment Options to flex annual spending with macro Capex and growth outcomes Investment decisions driven by Portfolio fit Affordability Profitability

7 PLACE IN ORGANISATION Executive Committee (EC) CEO Business Director Upstream International Business Director Upstream Americas Business Director Downstream Business Director Projects & Technology CFO HR & Corporate Director Legal Director EC CFO EC-1 EVP Strategy & Planning EVP Finance UI EC-2 VP Strategy VP Planning VP Strategy & Planning

8 OVERVIEW Introduction of portfolio management The basis: Project cash flows The next step: Ranking projects DIY: A practical example

9 VALUE CREATING INVESTMENT DECISIONS The most important decision a manager can make is the capital investment decision This key decision involves comparing the amount of cash invested today (risk) on a project, with cash inflows (reward) expected from the investment in the future A good investment decision is a decision that increases the current market value of the Company s equity, thereby creating value for shareholders

10 CAPITAL INVESTMENTS DEVELOPMENT ECONOMICS Worked Example - Field development in Southern North Sea Gas development Significant Capital investment required Do we approve or not? Discounted Cashflow analysis NPV modelling

11 CASHFLOW BUILD-UP Cashflow ($mln/yr) MOD) Total Capex

12 CASHFLOW BUILD-UP Cashflow ($mln/yr) MOD) Total Capex Income

13 CASHFLOW BUILD-UP Cashflow ($mln/yr) MOD) Opex Total Capex Income

14 CASHFLOW BUILD-UP Cashflow ($mln/yr) MOD) Tax Opex Total Capex Income

15 CASHFLOW BUILD-UP Cashflow ($mln/yr) MOD) Cashflow = Cash-in minus Cash-out Tax Opex Total Capex Income Post Tax Cashflow

16 CASHFLOW ANALYSIS Cashflow ($mln/yr) MOD) Post Tax Cashflow -30 Cashflow = Cash-in minus Cash-out

17 Cumulative Cashflow ($mln) CASHFLOW ANALYSIS Cashflow ($mln/yr) MOD) Cashflow = Cash-in minus Cash-out Post Tax Cashflow Cum. Cashflow 0% DR

18 Cumulative Cashflow ($mln) CASHFLOW ANALYSIS Cashflow ($mln/yr) MOD) Cashflow = Cash-in minus Cash-out Post Tax Cashflow Cum. Cashflow 0% DR Cum. Cashflow 5% DR Cum. Cashflow 10% DR

19 Cumulative Cashflow ($mln) CASHFLOW ANALYSIS Payout time Cashflow ($mln/yr) MOD) Project 10% nominal discount rate Post Tax Cashflow Cum. Cashflow 40% DR Cum. Cashflow 0% DR Cum. Cashflow 5% DR Cum. Cashflow 10% DR Maximum exposure or Cash sink (MOD) NPV zero IRR = 40%

20 OVERVIEW Introduction of portfolio management The basis: Project cash flows The next step: Ranking projects DIY: A practical example

21 AT FIRST PORTFOLIO VIEW Cumulative NPV ($mln) This point on the curve represents our development project Cumulative Investment ($mln)

22 RESOURCE CONSTRAINTS REQUIRE PORTFOLIO DECISIONS Cumulative NPV ($mln) Capital Limit for 2011 Plan Manpower Constraint? Drilling Constraints? Cumulative Investment ($mln)

23 THAT ARE GUIDED BY A NUMBER OF METRICS Strategic Maturity of the Opportunity Final Investment Decision (FID) date Volumes Production Strategic partnering Competitive advantage (differentiation) Country Risk Financial / Economic Value (NPV) Value Investment Ratio (VIR) Capital Outlay (Capex / Opex / Expex) Payback time Break-even price Cash sink Unit Technical Cost (UTC) Upside at high oil price Fiscal regime (creaming curves etc)

24 OVERVIEW Introduction of portfolio management The basis: Project cash flows The next step: Ranking projects DIY: A practical example

25 GAME: INTRODUCING YOUR TASK You are in the Board of Always Summer Energy (ASE), a major IOC. You are sitting together for the Board meeting the day before you will go to the wider external community of analysts, banks, stock market circles with your next quarterly announcement. In your previous announcement (August 11) you made the following promises to the market: Control the net capital investment below $2.5 bln per year moving forward. To offset analysts concerns about project delivery you committed to limit yourself to no more than 3 major organic projects under construction at any one time. You have also presented the slides in relation to your corporate strategy (next page). Your management have brought to you 3 proposals on the final investment decisions: Clear sky, 30C, and Ray Ban. Question: What final investment decision(s) are you going to announce to the market tomorrow? Note 1: You currently have no projects under construction (in Execution stage). Note 2: It takes approx. 4 years for an organic project to be constructed (to get from FID date to Start-Up date). Note 3: Usually all organic projects spend Capex evenly over 4 years during their construction phase. Note 4: Acquisition and swap projects are considered as not organic.

26 ASE STRATEGY UPDATE London, 23 August 2011 Increase the share of gas in the portfolio Build on advanced technology knowledge Maintain leadership in CCS Minimise exposure to rainy locations Further build our position in Africa (currently only exploration) Deepen strategic partnership with Noil

27 ASE FUNNEL BUILDING A BRIGHT FUTURE Assess (Business Development/scoping) Select (PCN/pre-FEED) Define (in/close to FEED) Dry shower Suntan 100F Parhelion Parasol Sundowner Rainbow Big blue Bright star Apollo Summertime Breeze Clear sky 30C? Black sun Ray Ban?? FID 2011 LEGEND Organic project Acquisition /Swap

28 DETAILS OF DEVELOPMENT OPTIONS Remember: It takes approx. 4 years for an organic project to be constructed (to get from FID date to Start-Up date). Usually all organic projects spend Capex evenly over 4 years during their construction phase. Acquisition and swap projects are considered as not organic.

29 Source:

30 ASE BASIC PORTFOLIO CHART VIR NPV (USD MLN)

31 BASIC VIEW ALLOWS FOR A FIRST RANKING Criteria used: VIR > 0.35 and NPV > 0 VIR NPV (USD MLN)

32 BUT WHAT ABOUT THE STRATEGIC FIT? Strategic score No brainers No brainers Doubts NPV (USD MLN)

33 POS OR THE CHANGES OF SUCCESS? Criteria used: POS > 50% and NPV > 0 NPV (USD MLN)

34 AND WHAT ABOUT THE OTHER DRIVERS? Gas production Oil production NPV (USD MLN)

35 Conclusion Portfolio Management is not so much science, it s an art

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