Comprehensively Valuing an Asset – SPE HEES Presentation Preview
Author: Caitlan Capps, PMP, Senior Solutions Consultant
At the upcoming HEES conference, I will present the SPE paper, “Comprehensively Valuing an Asset; how a Holistic Value Approach Aligns with Specific Corporate Goals.” This presentation will address how too simple an approach in evaluating an asset can cause a distortion of results; for instance, a simple NPV calculation of one particular asset may not factor in a company’s overall cash flow, any present long-term investments or existing rig contracts.
So…how do you measure an asset’s value?
Valuing an asset is not simply taking total potential revenue and deducting from it the estimated cost to produce that revenue. Likewise, an asset with the highest NPV or IRR is not necessarily the best investment for a company to make. More important than its potential to generate revenue, defining the value of an asset depends on the context of the company portfolio to which the asset belongs as well as the current and future environment and infrastructure surrounding that asset.
Are your economic indicators too simplified?
A company must take into account market risk, current interdependencies of the complex network of getting product to market, and future infrastructural and environmental challenges before moving forward with a decision. By approaching the broad term “asset value” and demarcating it to fit a specific company based on the aforementioned items, the company can holistically value an asset. Valuing an asset requires having the ability to isolate specific variables, run several iterations of calculations, and analyze the results from multiple angles, all while using data that is a true reflection of the current state of the market and asset in question.
Do you understand these economic indicators in relationship to your corporate strategy?
There is a difference between taking a measurement of a metric and making a key decision using a combination of metrics and relating them to the strategic goal of a company as a whole, understanding that the value of an individual asset only plays a part in the portfolio of a company. In this way, any one asset’s value can differ from company to company. By utilizing a comprehensive approach, an asset’s true value can be measured for the company performing the evaluation.
Do you want to know more?
The SPE Hydrocarbon Economic Evaluation Symposium in Houston, TX on May 17-18th will explore technologies and industry best practices to address this complexity. I invite you to attend my ePoster presentation, at 3:00pm on Wednesday, May 18th, where I will present the paper, “Comprehensively Valuing an Asset; how a Holistic Value Approach Aligns with Specific Corporate Goals.”
The Hydrocarbon Exonomics and Evaluation Symposium takes place May 17-18, 2016 in Houston, TX. With this year’s theme of “Fundamental Drivers, Commodity Cycles, and the Dynamics of Oil and Gas Valuation,” the event creates an opportunity for E&P professionals to capitalize on the rapidly developing industry and to share technologies and services required to meet the demand. Learn more on the event website.
About Caitlan Capps
Caitlan Capps, PMP, is a Senior Services Consultant with 3esi-Enersight operating out of Houston, US. Caitlan is an industrial engineer with an MBA. She brings to 3esi-Enersight experience in project management and has worked on multiple integration projects of varying size and complexity. She helps introduce best in class workflows for modeling production and economics in order to guide E&P companies meet management targets while maximizing their value.
3esi-Enersight is the world leading provider of integrated solutions for strategy, planning and execution in upstream oil and gas. From the field, to the boardroom, in operations across 6 continents, 3esi-Enersight is empowering E&P organizations to maximize the value of their upstream portfolios and stay ahead of the competition. Our solutions help customers work more efficiently across teams and functions and make better strategy and planning decisions based on data they can trust.