Delta Petroleum

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M13 GED – GROUP EXERCISE
GROUP 2 PORTFOLIO

MEMBERS| STUDENT I.D Number|
1) Kemeitupamoere Eradiri| 4585381|
2) Iranilma Dos Santos| 4693000|
3) Paul Uchenna Gabriel| 4944924|
4) Amma Addai-Donkor| 4774941|
5) Tari Youkedebah| 4534895|
6) Karen Elom Adiamah| 4761446|
7) Seidu Babilo| 4816285|
8) Obinna Vincent Unaegbunam| 4901536|
9) Henry Ajieh| 4517245|
INTRODUCTION
Currently, Delta Petroleum is experiencing swift decline in the in its current oil production. Therefore growth and replacements is its top priority, with a focus on the rationalization of 5 upstream assets in different countries, namely: Algeria, Canada, Kazakhstan, Mozambique and UK North Sea. The different assets are economically analysed and a portfolio developed with an aim to ascertain the best and most profitable asset(s) affordable with the limited budget of $900M/year for five years. Assets are analysed and Portfolio drawn based on the following factors: * VALUE (Net Cash flow, Profit-to-Investment Ratio)

* CONTINUING PRODUCTION
* PRODUCT MIX (Oil + Gas)
* DIVERSITY OF SUPPLY
* POLITICAL STABILITY

DATA
Prices (as @ 8/02/13): BRENT = $114.5/bbl, WTI = $92.08/bbl and Nat. Gas = $3.46/MMbtu Tax rates: Algeria = 20%, UK = 30%, Canada = 15%, Kazahkstan = 20%, Mozambique = 32% Conversion Rates: 1BOE = 5658.5Cuft and 1Cuft = 1020Btu

1) PRODUCT MIX AND VALUE:
Product mix can be defined as the total number of product lines a company offers to its customers. * Algeria has 2 product mix (Oil and Gas). Has 3 oilfields and a net reserve of 280 million bbls. Has an API value of 34. But, the price cap of $35/bbl which is below the current market price of $92.08 makes it less desirable for our company. Also has a gas field with net reserve of 1.5Tcf with quality gas but a price cap of 2.95/mmbtu instead of the current $3.46/mmbtu is also bad for our company. * UK North Sea has 5 mature oil assets and 3 gas fields with a net reserve of 60mmbbls and 300bcf respectively. The oil quality is light and sweet crude while the quality of gas is also good making it nice to invest. * Western Canada has just the oil asset with a net reserve of 200mmbbls and a possibility of upgrading to synthetic crude which provides us with a high profit margin as the demand for synthetic crude is very high. * Kazakhstan has just the oil asset with a net reserve of $720mmbbls for 4 licenses, but, a sulphur content of 3% decreases the quality of the oil and hence the demand also making it a bit difficult to invest. * Mozambique has 2 licenses with $3Tcf net reserve, but, the government is still working out a bill to determine the fiscal regime.

2) CALCULATIONS OF PROSPECT FOR CONTINUING PRODUCTION:
ALGERIA
3 Oil Fields (net reserve = 280Mbbl) : 1 Gas Field (net reserve = 1.5Tr Cuft) Crude API = 340 (medium Crude)
Product cap = $35/bbl and $2.95/mmbtu ($0.003/Cuft).
Operating cost ($9 x 150,000 x 365) - $492,750,000 Transport & Tariff cost ($1.5x 150,000 x 365) - $82,125,000

INVESTMENT = $80M + ($7X 150,000 X 365)| $436,250,000|
REVENUE = $35 X 150,000 X 365| $1,916,250,000|
TAX (20% of Revenue)| $383,250,000|
OPEX (Operating + Transport)| $574,875,000|

Table 1: NET CASH FLOW FOR OIL WELL
| Figures are represented in Million USD (1000 000)|
YEAR| INVESTMENT| REVENUE| TAXES| TOTAL EXPENSES| NET CASH FLOW (NCF)| ∑ NCF| 0| 463.25| | | | -463.25| -463.25|
1| | 1,916.25| 383.25| 574.875| 958.125| 494.875| 2| | 1,916.25| 383.25| 574.875| 958.125| 1,453.000| 3| | 1,916.25| 383.25| 574.875| 958.125| 2,411.250| 4| | 1,916.25| 383.25| 574.875| 958.125| 3,369.250| 5| | 1,916.25| 383.25| 574.875| 958.125| 4,327.375| TOTAL| | 9,581,25| 1,916.25| 2,874.375| 4,327.375| |

Pay-back Time (Investment/NCF) = $...
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