BACKGROUND

There are many E&P companies with offshore focus that have asset portfolios predominantly made up of exploration acreage. This is especially the case on the Norwegian Continental Shelf (NCS). When valuating exploration assets the challenge is not just related to volume characteristics but also to timing, for example drilling of wildcat and appraisal wells or lead time of developments in case of exploration success. Analysts have traditionally dealt with this challenge by using standard risk multiples. However, this approach often does not consider value drivers such as timing effects and regional differences within the exploration assets. For instance, there are significant differences in cost structure and development timing for assets in the North Sea compared to the Barents Sea due to market distance, infrastructure, etc.

APPROACH

Rystad Energy has built its own proprietary valuation model for exploration portfolios, which takes commercial and geological risks as well as the drilling probability into account. Based on the extensive data provided in our UCube database, reliable benchmarks are available for exploration success, cost inputs, development solutions, and lead time. Through extensive research from consulting projects and the NCS Business Development Atlas, Rystad Energy has developed an extensive understanding of the rig market, especially on the NCS. This provides a strong foundation for assessing when and where future wildcat wells will be drilled.

RESULT

The result is a robust, transparent, and flexible model for the valuation of exploration portfolios, which takes into account different risks, cost, time, and regional parameters. Results can be visualized with risked production and cash flow profiles together with key ratios as seen in the graph.

License Portfolio Input and Results: Prospect Prosperity