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BUILDING A WORLD OF DIFFERENCE®
Net Present Value (NPV) AnalysisNet Present Value (NPV) Analysis
June 10, 2008
BUILDING A WORLD OF DIFFERENCE®
B&V - 2 6/10/2008
Key Conclusions
4.5 Bcf/d TransCanada Proposal has Positive NPV Benefits to All Stakeholders
Tariffs for Smaller Pipeline Configurations Increase by 13% to 21% Relative to the 4.5 Bcf/d Proposal Base Case
NPV for Key Stakeholders Indicates Positive NPV for the Conservative Base Case
NPV Results are Sensitive to Many Factors with Commodity Prices being the Most Significant
Producer NPV Remains Positive with Low Market Price Assumptions
Production from Proven Reserves Drive Positive Stakeholder NPV
Smaller Initial Pipeline Capacity and Contract Period for Smaller Pipeline Configurations Reduce Reserve Risk Relative to the Proposal Base Case
BUILDING A WORLD OF DIFFERENCE®
B&V - 3 6/10/2008B&V - 3
Impact of the Gasline: Cash flows and NPV calculated are the difference between oil+gas and oil only operations.
Oil + Gas $$
Oil Only $
Cash Flows from Gas $
_
=
BUILDING A WORLD OF DIFFERENCE®
B&V - 4 6/10/2008B&V - 4
The NPV Modeling Approach Utilized by Black & Veatch
OUTPUTS
Cumulative NPV
Distributions
INPUTSMonte Carlo
Upstream Model
State NPV Model
MidstreamRate Model
Production Scenarios
Capital Costs
Price Model
Informational Outputs
Links Sheet
Timing / Scheduling
SOA NPV 4.5 BCF/d Pipeline
Mean=72.9
SOA NPV 4.5 BCF/d LNG
Mean=48.1
0%
20%
40%
60%
80%
100%
20 37.5 55 72.5 90
State NPV - $Billions
Prob
abili
ty
BUILDING A WORLD OF DIFFERENCE®
B&V - 5 6/10/2008
Overview of Natural Gas Price Assumptions Utilized in the NPV Analysis
Gas delivered to different locations has different prices: Henry Hub vs. AECO
Prices dependent on the supply/demand balance and pipeline infrastructure
Forecasts are required to evaluate the project from 2020 to 2045+
Relied on range of forecasts
EIA
Wood Mackenzie
B&V
Others
Wood Mackenzie is the base case for analysis
Independent market assessment
Projects an AECO price
BUILDING A WORLD OF DIFFERENCE®
B&V - 6 6/10/2008
Forecasted prices are “point” estimates, all dependent on a specific set of assumptions
None are expected to be on the dot “correct”
Price uncertainty and associated risks could be better illustrated using a forecasted price distribution:
Black & Veatch assumes that the majority of price risks comes from uncertainty in fundamental factors:
Understanding the Factors that Lead to Future Prices
Range of Price
Pro
babi
lity
• Finding & development costs• Technological improvement
• LNG imports• Power generation demand
• US industrial demand• CDN industrial demand
BUILDING A WORLD OF DIFFERENCE®
B&V - 7 6/10/2008Draft Work in Progress – Privileged and Confidential
Real Price Growth at AECO is Expected Under All Price Forecast Scenarios due to Increasing Costs
$-
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
$40.00
$45.00
2008 2012 2016 2020 2024 2028 2032 2036 2040 2044
Nom
inal
$/M
MB
tu
Wood Mackenzie AECO Forecast
$-
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
$40.00
$45.00
2008 2012 2016 2020 2024 2028 2032 2036 2040 2044
Nom
inal
$/M
MB
tu
Wood Mackenzie AECO Forecast
Estimated EIA AECO Forecast
$-
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
$40.00
$45.00
2008 2012 2016 2020 2024 2028 2032 2036 2040 2044
Nom
inal
$/M
MB
tu
Wood Mackenzie AECO Forecast
Estimated EIA AECO Forecast
BV Base Case Forecast
$-
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
$40.00
$45.00
2008 2012 2016 2020 2024 2028 2032 2036 2040 2044
Nom
inal
$/M
MB
tu
Wood Mackenzie AECO Forecast
Estimated EIA AECO Forecast
BV Base Case Forecast
BV P10
BV P90
BUILDING A WORLD OF DIFFERENCE®
B&V - 8 6/10/2008
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044
Bcf
/d
PBU/State Existing Point ThompsomState - Yet-to-Find Fed-Onshore
Production Assumptions: 4.5 Bcf/d Proposal Base Case
Yet-to-find production assumes a 50/50 mix of
State/Fed Onshore reflecting ratio of available
reserves
BUILDING A WORLD OF DIFFERENCE®
B&V - 9 6/10/2008
Positive Netbacks Are Expected Under All Price Forecasts
$-
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
$40.00
$45.00
2020 2024 2028 2032 2036 2040 2044
Nom
inal
$/M
MB
tu
Nominal AECO Tariff
Wood Mackenzie AECO Price Forecast
EIA AECO Price Forecast
BV Base
BV P10
BV P90
Positive Netback
BUILDING A WORLD OF DIFFERENCE®
B&V - 10 6/10/2008
Cash flows from 4.5 Bcf/d Proposal Base Case
Producer$14824%
U.S. Gov$11619%
State of Alaska$26244%
TransCanada$6911%
Canadian Gov.$92%
Cash Flows to Stakeholders
($5.0)
$5.0
$15.0
$25.0
$35.0
$45.0
$55.0
2008 2011 2014 2017 2020 2023 2026 2029 2032 2035 2038 2041 2044
$ B
illio
ns
State of Alaska Aggregate Producer Trans Canada
Canadian Gov. US Fed. Gov.
BUILDING A WORLD OF DIFFERENCE®
B&V - 11 6/10/2008
4.0 Bcf/d Conservative Base Case Cash FlowsCash-flows to Stakeholders
($5.0)
$5.0
$15.0
$25.0
$35.0
$45.0
$55.0
2008 2011 2014 2017 2020 2023 2026 2029 2032 2035 2038 2041 2044
$ B
illio
ns
State of Alaska Producers Trans Canada
Canadian Gov. US Fed. Gov.
Producer$13725%
U.S. Gov$10719%
State of Alaska$24544%
TransCanada$5510%
Canadian Gov.$102%
BUILDING A WORLD OF DIFFERENCE®
B&V - 12 6/10/2008
3.5 Bcf/d Low Volume Sensitivity CaseCash-flows to Stakeholders
($5.0)
$5.0
$15.0
$25.0
$35.0
$45.0
$55.0
2008 2011 2014 2017 2020 2023 2026 2029 2032 2035 2038 2041 2044
$ B
illio
ns
State of Alaska Producers Trans Canada
Canadian Gov. US Fed. Gov.
Producer$11624%
U.S. Gov$9119%
State of Alaska$20944%
TransCanada$5211%
Canadian Gov.$92%
BUILDING A WORLD OF DIFFERENCE®
B&V - 13 6/10/2008B&V - 13
Expected State of Alaska NPV5 is $66.1 billion
$261.5
$147.6
$66.1$51.3
$31.5
$0
$50
$100
$150
$200
$250
$300
CashFlow
2% 5% 6% 8%
$ B
illio
ns (2
008)
Discount Rate:
Base Case
BUILDING A WORLD OF DIFFERENCE®
B&V - 14 6/10/2008B&V - 14
Price is a Key Driver to Variations in the NPV5 to the State of Alaska
P10
2% Capex; 2% Opex
P10
50% Decrease
PBU 3.5 BCF/d; No PT
100% Increase
P90
8.81%
P90
6% Capex; 5% Opex
$- $20.0 $40.0 $60.0 $80.0 $100.0 $120.0 $140.0
Production Scenarios
TransCanada Schedule
Pipeline Interest Rate
TransCanada Capital Cost
Upstream Capital Costs
Cost Escalation
Commodity Prices
State NPV5 ($Billion 2008)
Base Assumption
Wood Mackenzie
Prices
PBU 3.0 BCF/d; PT Blowdown
Base Case
4% Capex; 3% Opex
Base Case
Mean Capital
7.06%
SensitivityBase Case
P90P10
BUILDING A WORLD OF DIFFERENCE®
B&V - 15 6/10/2008B&V - 15
The impact from price uncertainty swamps estimated capital cost and schedule uncertainty.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
$0 $50 $100 $150 $200 $250
$2008 Billions NPV5
Pro
babi
lity
(%)
4.5 AECO w/ Price and TCSchedule-Cost Uncertainty4.5 AECO w/ only TC Schedule-Cost Uncertainty
Uncertainty analysis required the use of the lower
B&V forecasts. Results indicate no likelihood for a negative NPV to the State.
BUILDING A WORLD OF DIFFERENCE®
B&V - 16 6/10/2008B&V - 16
NPV for the State is Expected to be Positive Under all Price Scenarios
State NPV5
$66.1
$42.3
$56.5
$18.6
$118.2
$-
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
$140.0
WoodMackenzie
EIA 2008 BV Mean BV P10 BV P90
$ B
illio
ns (2
008)
BUILDING A WORLD OF DIFFERENCE®
B&V - 17 6/10/2008
Like the State, NPV for the Producers is Expected to be Substantial under Base Case Assumptions
$13.5
$1.6
$11.9
$5.2
$0.3
$4.9
$0.0
$3.0
$6.0
$9.0
$12.0
$15.0
AggregateProducers
YTF Proven Reserves
$ B
illio
ns (2
008)
NPV10 NPV15
Existing reserves provide the greatest amount of NPV benefit to the producers due to the low expected capital outlay required to flow into the Gasline.
YTF NPV is understated due to the analysis life of 25 years. If the analysis is expanded to 35 years, YTF NPV improves to $3.9 billion at a 10% discount rate.
BUILDING A WORLD OF DIFFERENCE®
B&V - 18 6/10/2008B&V - 18
Producer Sensitivity to Key Variables is Similar to the State
P10
2% Capex; 2% Opex
P10
P90
50% Decrease
6% Capex; 5% Opex
P90
P10
8.81%
P90
100% Increase
PBU 3.5 BCF/d; No PT
$(5.0) $- $5.0 $10.0 $15.0 $20.0
Production Scenarios
Pipeline Interest Rate
TransCanada Capital Cost
TransCanada Schedule
Upstream Capital Costs
Cost Escalation
Commodity Prices
Producer NPV10 ($Billion 2008)
Base Assumption
Wood Mackenzie
Prices
PBU 3.0 BCF/d; PT Blowdown
Base Case
4% Capex; 3% Opex
Base Case
Mean Capital
7.06%
Sensitivity Base Case
BUILDING A WORLD OF DIFFERENCE®
B&V - 19 6/10/2008B&V - 19
The producers have a very low likelihood for a negative NPV10 from low prices, no likelihood from cost scope risk.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
-$10 -$5 $0 $5 $10 $15 $20 $25 $30 $35 $40
$2008 Billions NPV10
Pro
babi
lity
(%)
4.5 AECO w/ Price and TCSchedule-Cost Uncertainty4.5 AECO w/ only TC Schedule-Cost Uncertainty
Uncertainty analysis required the use of the lower
B&V forecasts. Results indicate less than a 5%
chance of a negative NPV10to the Producer.
Chance of negativeNPV10 is~ 5%
BUILDING A WORLD OF DIFFERENCE®
B&V - 20 6/10/2008B&V - 20
NPV for the Producers is Expected to be Positive Under all Price Scenarios
Producer NPV10
$13.5
$1.6
$9.3
$0.8
$12.2
$1.2$2.0
($0.5)
$2.5
$20.2
$2.5
$17.7
$11.9
$8.5
$11.0
($5.0)
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
Aggregate Producers YTF Proven Reserves
$ B
illio
ns (2
008)
Wood Mackenzie EIA 2008
BV Mean BV P10BV P90
Producer NPV15
$5.2
$0.6
($0.3)
$8.0
$0.5
$7.5
$0.3
$4.9$3.5
$0.1
$3.4 $4.6
$0.2
$4.7
$0.9
($5.0)
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
Aggregate Producers YTF Proven Reserves
$ B
illio
ns (2
008)
Wood Mackenzie EIA 2008
BV Mean BV P10
BV P90
BUILDING A WORLD OF DIFFERENCE®
B&V - 21 6/10/2008B&V - 21
Project Cash Flows are Favorable if Built Today
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044
Gas
Pric
e (R
eal $
/MM
Btu
)
4.5 Case Tariff (Approximate Real)
Wood Mackenzie AECO (Real)
BV AECO Base (Real)
BV AECO P90 (Real)
BV AECO P10 (Real)
Current AECO Forward Curve
Real prices are shown (no inflation) against the projected tariff based on today’s capital costs (no inflation). Today’s AECO forward market is $9.62/MMBtu.
BUILDING A WORLD OF DIFFERENCE®
B&V - 22 6/10/2008
Analysis of Impact of Price Levels - Flat Real Prices
Analysis investigated the impact of price levels on project economics
Flat real prices levels from $5/MMBtu to $10/MMBtu were considered for natural gas price at AECO
2.5% inflation assumed to estimate dollars of the day prices
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
Nom
inal
$/M
MB
tu
Real Flat $5 Real Flat $6 Real Flat $7
Real Flat $8 Real Flat $9 Real Flat $10
BUILDING A WORLD OF DIFFERENCE®
B&V - 23 6/10/2008
Price levels have a significant impact on Producer NPV. NPV10 remains positive with real prices in $5-$10/MMBtu range.
Aggregate Producer NPV10
$4.7
$7.7
$10.2
$12.5
$14.6
$16.5
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
$16.0
$18.0
$20.0
4.5 AECO$5 Real
4.5 AECO$6 Real
4.5 AECO$7 Real
4.5 AECO$8 Real
4.5 AECO$9 Real
4.5 AECO$10 Real
$Bill
ion
2008
Aggregate Producer NPV15
$1.9$3.1
$4.2$5.1
$6.0$6.7
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
$16.0
$18.0
$20.0
4.5 AECO$5 Real
4.5 AECO$6 Real
4.5 AECO$7 Real
4.5 AECO$8 Real
4.5 AECO$9 Real
4.5 AECO$10 Real
$Bill
ion
2008
BUILDING A WORLD OF DIFFERENCE®
B&V - 24 6/10/2008B&V - 24
YTF Gas Required to Keep Pipeline Full under Different Contract Periods and for Different Pipeline Capacities
% of Contract Volume Requiring YTF Gas
26%
15%
3%
28%
3%
21%
1%
15%
10%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
25/25 20/20 15/15
Contract Period/Depreciation Life (years)
%
4.5 Bcf/d 4.0 Bcf/d 3.5 Bcf/d
BUILDING A WORLD OF DIFFERENCE®
B&V - 25 6/10/2008B&V - 25
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044
Rev
enue
/Cos
t ($
Bill
ions
)
4.5 Case Transportation Cost
4.5 Case Total Revenue
4.5 Case Total Revenue - 0 YTF GAS
Producer NPV is Expected to Remain Positive if No YTF Gas is Produced Producer NPV10
$13.5
$1.6
$0.0
$11.3$11.9
$11.3
$0.0
$3.0
$6.0
$9.0
$12.0
$15.0
AggregateProducers
YTF Proven Reserves
$ Bi
llion
s (2
008)
Base Case
0 YTF GAS
BUILDING A WORLD OF DIFFERENCE®
B&V - 26 6/10/2008B&V - 26
Production Assumptions: 4.0 Bcf/d Case
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044
Bcf
/d
PBU/State Existing State - Yet-to-Find Fed-Onshore
Yet-to-find production assumes a 50/50 mix of
State/Fed Onshore reflecting ratio of available reserves
BUILDING A WORLD OF DIFFERENCE®
B&V - 27 6/10/2008B&V - 27
Production Assumptions: 3.5 Bcf/d Case
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044
Bcf
/d
PBU/State Existing State - Yet-to-Find Fed-Onshore
Yet-to-find production assumes a 50/50 mix of
State/Fed Onshore reflecting ratio of available reserves
BUILDING A WORLD OF DIFFERENCE®
B&V - 28 6/10/2008B&V - 28
Expected Tariffs from the North Slope to the AECO Market
AECO Tariff
$4.73$5.33
$5.71
$-
$2.0
$4.0
$6.0
$8.0
$10.0
4.5 Bcf/d 4.0 Bcf/d 3.5 Bcf/d
Nom
inal
$/M
MB
tu
4.5 Bcf/d 4.0 Bcf/d 3.5 Bcf/d
BUILDING A WORLD OF DIFFERENCE®
B&V - 29 6/10/2008B&V - 29
TransCanada NPV8.8
$4.5$3.8 $3.6
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
4.5 Bcf/d 4.0 Bcf/d 3.5 Bcf/d
$ B
illio
ns (2
008)
4.5 Bcf/d 4.0 Bcf/d 3.5 Bcf/d
TransCanada NPV8.8 is Significant under Proposed Terms and Base Case Assumptions
BUILDING A WORLD OF DIFFERENCE®
B&V - 30 6/10/2008B&V - 30
State NPV5
$66.1$60.7
$51.6
$-
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
$80.0
4.5 Bcf/d 4.0 Bcf/d 3.5 Bcf/d
$ B
illio
ns (2
008)
The State’s NPV5 Project is Lower with Lower Project Capacity but Remains Significant
BUILDING A WORLD OF DIFFERENCE®
B&V - 31 6/10/2008B&V - 31
Producer NPV Shows a Similar Trend When Compared to the State and TransCanada
Aggregate Producer NPV10
$13.5$12.3
$10.5
$-
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
$16.0
$18.0
$20.0
4.5 Bcf/d 4.0 Bcf/d 3.5 Bcf/d
$ B
illio
ns (2
008)
Aggregate Producer NPV15
$5.2 $4.7$4.0
$-
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
$16.0
$18.0
$20.0
4.5 Bcf/d 4.0 Bcf/d 3.5 Bcf/d
$ B
illio
ns (2
008)
BUILDING A WORLD OF DIFFERENCE®
B&V - 32 6/10/2008
Why does a delay increase State NPV5?
Why does a delay increase State NPV5?
Prices increase
Progressivity for production taxes increases as prices rise
Production Tax in 2020 = ~25%
Production Tax in 2045 = ~50%
Could a delay cause a decrease in the State NPV5?
Yes, if prices increase at a lower rate than the baseline Wood Mackenzie prices, then a project delay would cause a decrease inthe State NPV5