3.3. Assumptions and results of financial estimation
Assumptions on long-term basis:
Prices:
Price of Brent - $ 30 for barrel
Price at sale near abroad - $18 for barrel
Domestic price - 3500 rubles for ton
Sale market:
Export - 35 %
Near abroad - 8 %
Domestic market - 57 %
Restriction of export is explained by quotas which are established by the Government of the Russian Federation for all oil companies in connection with the limited opportunities of the main pipeline.
Transport (pipeline) tariffs are defined on the basis of current contractual settlement conditions taking into account further inflation. It is necessary to take into consideration that commercial expenses connected with oil transportation increases at export of oil. In case of oil sale abroad and near abroad the moment of sale is defined on the Russian border. In case of oil sale in domestic market the moment of sale, as a rule, is defined in Usinsk. Thus, transport expenses are different in each case (foreign market, near abroad, domestic market). So transport tariffs are 3 - 4 dollars for each barrel of oil in case of oil export. Total expenses for transportation are about 18-20 % of revenue. Also it is predicted that tariffs would tend to increase in the long term. At the same in case of domestic sale transport tariffs are about 0,50 - 0,60 dollars for barrel. Total expenses for transportation are only 4-5 % of revenue.
Production costs are defined based on current actual data taking into account future inflation. Basic clauses of production expenses are:
maintenance of production and injection wells;
energy expenses for liquid recovery;
gathering and preparation of oil;
water disposal expenses;
well workover;
depreciation;
ecology expenses.
Main tax payments:
export duty - an ascending scale (the principle of calculation is considered below);
oil production tax - according to the current legislation with privilege coefficient 0,7 (the principle of calculation is considered below);
property tax - rate is 2,2 % from balance cost of fixed assets;
profit tax - the rate of 24 %;
payments to social funds of Nenetsk Okrug - according to the contract with Okrug administration.
Mid-annual percent of depreciation of all fixed assets is 6 %. Company uses linear way of depreciation.
Other:
Rate of 1 barrel for 1 ton is 7,44
Dollar exchange rate changes from 28 rubles to 33 rubles till 2017.
Interest rate is 6,59
Discount rate is 10%
Annual Inflation is 3 %.
Let’s calculate the following finance indicators with variants of recovery probability (10 %, 50 % and 90 %):
cash flow before debt payments;
cash available for dividends;
net present value for the period 2005 – 2017;
net present value for the period 1992 – 2017;
internal rate of return;
Net profit according to Russian standards.
The results are presented in the table 3.6. (see detailed information in the attachments).
Table 3.6 Financial results of capital investment
Cash flow before Debt payment ($ MM) |
2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
P-10 (High Case) |
52.1 |
60.7 |
47.9 |
74.0 |
89.1 |
110.1 |
94.3 |
71.6 |
52.4 |
35.3 |
21.2 |
7.9 |
1.7 |
P-50 (Base Case) |
51.4 |
52.3 |
37.3 |
52.0 |
63.4 |
75.9 |
51.2 |
32.7 |
17.3 |
6.9 |
(1.2) |
(7.9) |
(13.9) |
P-90 (Low Case) |
49.6 |
46.6 |
29.8 |
25.8 |
31.2 |
43.9 |
24.0 |
10.0 |
(0.2) |
(7.1) |
(12.1) |
(16.7) |
(20.7) |
|
2005 |
2006 |
2007 |
2008 |
2009 |
Debt balance ($MM) |
90 |
60 |
35 |
15 |
- |
Debt payment ($ MM) |
30 |
25 |
20 |
15 |
- |
Cash available for Dividends ($ MM) |
2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
P-10 (High Case) |
44 |
79 |
107 |
166 |
255 |
376 |
470 |
541 |
594 |
629 |
650 |
658 |
660 |
P-50 (Base Case) |
43 |
70 |
88 |
124 |
188 |
274 |
325 |
358 |
375 |
382 |
381 |
373 |
359 |
P-90 (Low Case) |
41 |
63 |
73 |
84 |
115 |
169 |
193 |
203 |
202 |
195 |
183 |
166 |
146 |
Russian ATOI ($ MM) |
2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
P-10 (High Case) |
59.1 |
65.9 |
48.6 |
68.0 |
70.8 |
68.7 |
52.9 |
30.2 |
11.0 |
(6.0) |
(11.5) |
7.9 |
1.7 |
P-50 (Base Case) |
58.4 |
57.5 |
37.9 |
46.0 |
45.1 |
34.5 |
9.9 |
(8.6) |
(24.1) |
(34.5) |
(33.9) |
(7.9) |
(13.9) |
P-90 (Low Case) |
56.6 |
51.9 |
30.5 |
19.9 |
12.9 |
2.5 |
(17.3) |
(31.4) |
(41.6) |
(48.5) |
(44.8) |
(16.7) |
(20.7) |
NPV (2005 - 2017) |
|
|
NPV (1991 – 2017) |
|
|
IRR (1991 - 2017) |
|
P-10 (High Case) |
356.43 |
|
P-10 (High Case) |
72.21 |
|
P-10 (High Case) |
13.02% |
P-50 (Base Case) |
206.93 |
|
P-50 (Base Case) |
32.84 |
|
P-50 (Base Case) |
11.63% |
P-90 (Low Case) |
93.20 |
|
P-90 (Low Case) |
2.89 |
|
P-90 (Low Case) |
10.17% |
Figure 3.4 Diagrams of cash flows and cash available for dividends
Cash flow and cash available for dividends taking into account capital investment to drilling program and not taking into account such investment are presented in the figure 3.4.
The company would have some reduction of cash flow before 2007 due to capital expenses for realization of the drilling program. After 2007 value of cash flow would grow considerably within 3 years till 2010 then recession would begin again. The company would have positive cash flow till 2015. The schedule of cash available for dividends also evidently shows financial advantages in case of capital investment.
Value of NPV for 2005 - 2017 would be in 2 times more in case of drilling program and NPV for 1991 – 2017 would be more in 8 times.
Value of IRR for 1991 - 2017 г.г.would be 11,6 % with investment and 10,3 % without investment.
The figure 3.5 shows changes of financial results structure (revenue, expenses, profit) by years till 2017. This schedule evidently illustrates that the basic expenses would be tax payments for first 5-6 years. Then the basic share of expenses will be operating and overhead expenses. It is connected with specialities of oil branch: well drowning demands greater charges for water disposal, exhaustion of wells demands additional operating expenses for their maintenance and etc.
Figure 3.5 Structure of expenses
