Social media has experienced a bit of an uproar today over new revelations about the Malabu oil deal. President Goodluck Jonathan and Etete have been taking hits for being ‘fantastically corrupt’. Arguments have raged over the fraudulence of selling off a 500BN oil well for a paltry sum of 1.3 BN. Figures are all in dollars.
Fortunately, Dolapo Oni, an upstream, midstream & downstream segments of the Oil & Gas Industry, Power, Fertilisers, Renewable Energy, Natural Resources and Mining, Ratings & Research Analyst has cleared up the confusion.
The Malabu Oil well was priced just right. It is the people who made away with the money we should be dragging.
[Read Also]: “The Thread: Nigerians react to GEJ-Malabu Oil Scandal”
Do see details below:
Just a quick thread to clear a few things about how oil blocks are valued. Key words to pay attention to – Reserves, Acreage, License etc
— Dolapo Oni (@Dolarpo) April 12, 2017
2. When a commercial quantity of oil is found in a field, then you claim to have 'Reserves' but you dont know how much can be recovered yet
— Dolapo Oni (@Dolarpo) April 12, 2017
3. so you have Possible Reserves (3P) with less than 10% probability of recovery; Probable Reserves (2P) 50% and Proven Reserves (1P) >90%
— Dolapo Oni (@Dolarpo) April 12, 2017
Then you have reserves that often require more drilling or other conditions to be met before you can be certain, called Contingent reserves
— Dolapo Oni (@Dolarpo) April 12, 2017
5. The size of the block is called Acreage. You can drill anywhere on ur block. Often times reserves even stretch from one block to another
— Dolapo Oni (@Dolarpo) April 12, 2017
6. Finally the last bit is your License – oil prospecting license (OPL) or oil mining lease (OML). Typically for 20 years. You pay a bonus..
— Dolapo Oni (@Dolarpo) April 12, 2017
…signature bonus when you get ur OPL, when you establish commercial reserves, you convert into an OML. subsequently u pay a renewal bonus
— Dolapo Oni (@Dolarpo) April 12, 2017
8. Oil in the ground is just what it is – Oil in the ground. The infrastructure & processes involved in bringing it to mrkt are key issues
— Dolapo Oni (@Dolarpo) April 12, 2017
9. A field that has 1 million barrels of oil is not the same as having a vessel with 1 million barrels offshore. So its not priced same way
— Dolapo Oni (@Dolarpo) April 12, 2017
10. A typical valuation wd be to do a discounted cashflow, which is to estimate all the cost to be incurred to bring the oil out, sell it…
— Dolapo Oni (@Dolarpo) April 12, 2017
11. For that you have a forecast of what oil prices and your annual production from the field – both for the life of the field to get…
— Dolapo Oni (@Dolarpo) April 12, 2017
…the potential revenue, remove the costs you've estimated (G&G, Drilling, EPC, O&M, admin, community, security etc), what u hv left is…
— Dolapo Oni (@Dolarpo) April 12, 2017
13. …is your annual cashflow. Then you discount the future cashflows into today's money. That gives you what the field is worth today.
— Dolapo Oni (@Dolarpo) April 12, 2017
14. There are other methods. You can apply the Real Options pricing model, Net Asset Value etc. One quick way is to use comparatives (comps)
— Dolapo Oni (@Dolarpo) April 12, 2017
15. If u look at oil fields sold in Nigeria in the last 7/8 years. Most of which have been valued typically with DCF & some with premiums…
— Dolapo Oni (@Dolarpo) April 12, 2017
16. You can quickly compare amount paid divided by total 2P reserves. This gives you a quick idea of what 2P reserves are worth…
— Dolapo Oni (@Dolarpo) April 12, 2017
18. Which bring us to OPL 245
License – 2011 – expires 2031
Acreage – 1958m2
Reserves – 726mmboe (Oil 580mmbbl, Gas 146mmboe)
Operator – ENI— Dolapo Oni (@Dolarpo) April 12, 2017
19. Even if you use the average 2P barrel of $2.67 of 2010 to 2013, the field is only worth $1.9bn. But in today's market 2P goes for $1
— Dolapo Oni (@Dolarpo) April 12, 2017
20. The issue with OPL 245 is the corruption involved. The people who got paid and pocketed money meant for the country.
— Dolapo Oni (@Dolarpo) April 12, 2017
The table from Tweet no 17 pic.twitter.com/bBglNd09RC
— Dolapo Oni (@Dolarpo) April 12, 2017
Thank you.
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