Econ Analysis Presentation

7/31/2019 Econ Analysis Presentation

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Cash Flow Analysis - Example

ens t v ty na ys s

Comparing Alternatives Questions


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Typically utilized to determine the financial merits ofcapital investments

Book Analysis

Conducted for tax purposes, contained in annualreport

Life Cycle Analysis

ssessmen o e env ronmen a mpac o a pro ecfrom cradle to grave Uses ISO 14,000 standards todetermine.


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Inputs Outputs

Capital Costs

Direct Expenses

Indirect Expenses

Product Flowstreams

Payback Period(PBP)

Product Price Forecasts

Depreciation

c ua a ue ro(AVP)

Present Value Profit(PVP)

MODEL

ro uc ax a es

Profit Tax Rates

Working and Net Interests

Discounted Rate of Return(DCFRR)

PEEPBetahat

GEMPACK

Discount Rate


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Capital Costs

str ute over per o

Direct Expenses Power, fuel, catalysts, chemicals, patents, licensing, royalties, machine

overhauls, turnarounds Escalate cost X percentage per year. 3-4% is a good start

Indirect Expenses

10% of Capital cost, 20-25% of Direct expenses, ,

control, marketing, R&D, Kleptocratic costs

Product Flowstreams Methane, NGLs, Sulfur, CO2, Power,

us or re a y, urnaroun s, p anne s Product Price Forecasts

Good Luck Best if originates from the operating company, www.eia.doe.gov for

domestic projects.


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Energy Information Administration Yearly Average Crude

Oil Price - WTI @ Cushing

70

50

60

l

?3040USD/b

0

10

1985 1990 1995 2000 2005 2010


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Payback Period

The amount of time it takes to recoup the original CapitalExpenditure

Simplest of indicators, very important in high risk areas

Non discounted after tax profit

Commonly used as a preliminary analysis of profitability, can bemisleading in long-life projects

Present Value Profit (PVP) Discounted after tax profit

Discount rate is industry and company specific: 5-15%

Discounted Cash Flow Rate of Return (DCFRR) % return on all capital investments after sufficient profit has been

made to recover capital invested so , or a e o e urn


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A

.

As Sales, Product Rates * Product FlowATE Total Expenses, All direct and indirect expenses, capital costs

ACI= As- ATE, Cash Income

AIT Income Tax, Annual Cash Income * Tax Rate, Plus Ad Valoremaxes

ANCI= ACI- AIT, Net Cash Income, Also Annual Cash FlowACF When the cumulativeANCI from each year is equal to zero, that is the

Payback Period


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, When the cumulativeANCI from each year is equal to zero, that is the Payback Period

Start with the Cash Flow Inputs

CapitalCost

DirectExpense

IndirectExpense Depreciation

Flow-stream Price

$k $k $k $k bbl/year $/bbl

2008 ($2,500) ($250)

2009 ($2,500) ($250)

2010 ($75) ($19) ($1,000) 80000 $80

2011 ($77) ($19) ($1,000) 80000 $84

2012 ($80) ($20) ($1,000) 80000 $88

2013 ($82) ($20) ($1,000) 80000 $93

2014 ($84) ($21) ($1,000) 80000 $97


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, Calculate the Sales, Total Expenses, Cash Income, Income Tax and the Net Cash

ncome as ow

The year to year cumulative cash flow is calculated. The payback period becomesapparent ~3.1 years

Calculate the Actual Value Profit: = $15,351n

n

NCI

AS

ATE

ACI

AIT

ANCI

ACF

Cum ANCI

ACF

0

$k $k $k $k $k $k

2008 ($2,750) ($2,750) ($1,018) ($1,733) ($1,733)

2009 ($2,750) ($2,750) ($1,018) ($1,733) ($3,465)

2010 $6,400 ($1,094) $5,306 $1,963 $3,343 ($122)

2011 $6,720 ($1,097) $5,623 $2,081 $3,543 $3,421

2012 $7,056 ($1,099) $5,957 $2,204 $3,753 $7,173

2013 $7,409 ($1,102) $6,306 $2,333 $3,973 $11,146

2014 $7,779 ($1,106) $6,674 $2,469 $4,204 $15,351


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, To consider the Time Value of the project, we look at the Net Present Value (NPV),

t e va ue o t e pro ect n to ay s o ars .

Calculate a discount factor (fd), to decrease the contribution of future cash flows tothe project value. Multiply this by the cash flows to determine the Discounted CashFlows.

ANCI

ACF

fd

ADCF

-nidf

)1(

1

2008 ($1,733) 1.00 ($1,733)

2009 ($1,733) 0.89 ($1,547)

Where i is the discountrate (12% in this case)and

, . ,

2011 $3,543 0.71 $2,522

2012 $3,753 0.64 $2,385

n is the years after projectimplementation (year-2008)

n, . ,

2014 $4,204 0.51 $2,130677,8$

0

)( NPVnDCFA


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How robust is the project to changes in the primary variables?

Capital Cost Typical Screening Capital Cost estimates have an uncertainty of + 20-

40% or more

Project Schedule The largest cash flows typically take place in the EPC phase. Project

schedules can

Clearly there are are opportunities for the price to change the economicindicators.

It is imperative that the stability of the economics be challenged.

For our project, we chose Capital Cost and Product Price and test theeffect on DCFRR


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.

80

60

%)

40

DCFRR

Base

0

20

3500 4000 4500 5000 5500 6000 6500

Capital Cost (M$)


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.

80

60

%)

40

DCFRR

Base

Lower

0

20

3500 4000 4500 5000 5500 6000 6500

Capital Cost (M$)


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.

80

60

%)

40

DCFRR Base

Lower

U er

0

20

3500 4000 4500 5000 5500 6000 6500

Capital Cost (M$)


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.

80

60

%)

40

DCFRR Base

Lower

U er

0

20

3500 4000 4500 5000 5500 6000 6500

Capital Cost (M$)


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Ranking Method

Rank based on economic indicators of the projects

Useful for generating a project priority seriatim

Aggregate Method Assumes the delta between the current alternative and the next

best alternative is invested in a reserve at the minimumallowable rate of return

Useful for com arin ver different ro ects with lar e ca ital costdeltas

Incremental Method Determine economics based on cash flow deltas between

pro ec s Start with lowest price alternative and develop indicators, comparewith next higher capital cost alternatives, keeping the current bestchoice until all alternatives are exhausted


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Econ Analysis Presentation