DSC’s entry into the E&P sector
NELP VII
Agenda
 DS
Objectives and Strategy
 NELP VII Objectives and
Strategy
 Action Plan
DS Objective & Strategy for Oil

DSC Board’s Objectives for E&P




Cash multiple of X times by which year?
IRR of 25% by Year 8
NPV of X $ million by which year?
Strategy



Entry into Indian Oil Industry through NELP VII
Acquisition of Acreage/blocks in order hopefully to
discover reserves (!)
Commitment of $200 million (?)



Over 7-8 years
Form JVs with experienced E&P Companies
Manpower, Systems & Software

Outsource first and then build In-house
DS Objective & Strategy for Oil

Initial Strategy
 Active JV Partner vs Sleeping Partner?
 Depends on partner
 Working interest
 90% [Naftogaz]; 20%? [OIL or other offshore
operator]
 How do we realise value?
 Farm out (i.e. sell part of working interest for
cash, royalty or work done)
 Win revenue from production

Do we enter Production [delay the decision]
NELP Objective & Strategy

Objectives

Acquire x blocks that imply capital expenditure of
$y million (approx. $200 million?)
 Say 5 blocks for a balanced affordable portfolio



But need to bid for say 10 blocks to win 5…
Revised estimate of $225 million on exploration
for 10 blocks (8 onshore) for typical winning
minimum work programmes, expended over 7-8
years (taken from analysis of NELP VI winners)
Revised estimate of additional $57m for 10
Blocks if one discovery is found on each of them
(the obligatory appraisal programme in the
Contract)
NELP Objective & Strategy

Overall Strategy





Take a working interest of at least 80% for onshore
blocks
 Willing to take minority interest in offshore
blocks
Joint venture with experienced Operators
 Sole risk on a few ‘S’ blocks?
Active (lead) JV Partner where high working interest
Leverage other partners’ technical teams to our
advantage
After award, spread risk by:
 Farm-in to additional 5 blocks by trading
equity and/or paying cash and/or work

Farm-out to other companies if DSC win too many
blocks
NELP Objective & Strategy

Detailed Strategy
Analyse about 20 blocks in detail, ideally 25+
 Latter achievable if help from JV partners
 Bid on 10 blocks ideally (to win 5)
 Budget must cover winning all blocks (or
farm out)!
 Achieve maximum marks on the biddable
Minimum Work Programme (MWP)
 Achieve DSC’s minimum corporate hurdle IRR
in fiscal package
NELP Action Plan

Mobilise


Public information to pre-prioritise blocks for
detailed study (starting now until Jan 8th)





Teams, hardware, software, videocoms starting now
Supplemented by contact with DGH
View online data as soon as DGH makes it available
Focus on the 38 onshore and shallow offshore
Agreement with Naftogaz (onshore)
Negotiate with OIL for offshore, but identify
competitor offshore operators

OIL unlikely to collaborate on many blocks, or
permit DSC significant working interest
NELP Action Plan

Mumbai road show



Overview; potential JVs; networking
Physical data room
Jan 8th
hopefully Jan 10th
Objectives: finalise blocks for detailed analysis; fine
tune additional data for purchase
Purchase of data packages- from Jan 10
Interpret seismic and well data- Jan 10th to Mar
10th
th

Identify possible hydrocarbon accumulations on
each block analysed, their range of potential sizes,
and the geological probability that they exist and
are economic
NELP Action Plan

Above information passed to Engineering (25th Jan until
10th Mar), who then deliver:







Recovery factor
Production profile
No. of wells
Cost of wells and surface facilities and pipelines
Schedule to first oil/gas
Capital and operating cost schedules, and
pipeline/processing tariffs
Economic modeling (25th Jan to 25th Mar)




Input assumptions (e.g. oil and gas price series;
escalation)
Basic cash flows
PSC terms (easily adjustable)
Any additional India- specific taxation
NELP Action Plan

Outputs (1st Mar to 31st Mar)



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
Economic metrics for various bid strategies (e.g. IRR,
NPVX, EMV, Payback, maximum exposure)
Range of potential hydrocarbons in place and probability
of existence
Cost of Minimum work programme for each favoured
block
Outputs according to bid rules and according to reality!
Bid package suitable for submission (25th Mar to 5th
Apr)



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Legal and taxations final due diligence
Board presentations
Internal decision making
Submission to government
NELP Immediate Steps (in order of priority)



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Purchase I.H.S database ($70k approx. for min. one
year, and temporary export to Buenos Aires) NOW!
Purchase/lease geophysics software ($55k to $130k,
temp exp to BA) NOW!
Purchase high end hardware for $60k for temp
export to BA) NOW!
Review existing video conferencing hardware for
compatibility and purchase two units for temp exp to
BA and UK for $60k (or borrow chairman’s in
London?)
Resolve data upload capability in Delhi for use of
video conferencing (bonded ADSL?)
Purchase/lease other software ($265k to $500k) for
temp exp to BA
Identify Indian academic to advise on petroleum
geology of offered Blocks.
NELP Cost Estimate of Exploration and
Appraisal Work Programmes
(based on NELP VI winning bids)
Exploration Cost of winning Ten Blocks
Block Type
Onshore S Type
Onshore A Type
Onshore B Type
Shallow Offshore A Type
Totals
No. Available
9
7
13
9
38
No. Won
4
2
2
2
Avg Cost/Block
$16.0
$24.1
$33.2
$57.4
DSC W.I.%
90%
90%
90%
55%
Assumptions on W.I.
Partner: NaftoGaz: 10% WI
Partner: NaftoGaz: 10% WI
Partner: NaftoGaz: 10% WI
(i) Partner: NaftoGaz: 10% WI; (ii) OIL: 80% WI
10
DSC Cost $m
$58
$43
$60
$63
$224
Appraisal Cost of winning Ten Blocks (say two appraisal wells + studies per Block)
Block Type
Onshore S Type
Onshore A Type
Onshore B Type
Shallow Offshore A Type
Totals
No. Available
9
7
13
9
38
No. Won
4
2
2
2
10
Avg Cost/Block
$5.1
$5.1
$5.9
$17.1
DSC W.I.%
90%
90%
90%
55%
Assumptions on W.I.
Partner: NaftoGaz: 10% WI
Partner: NaftoGaz: 10% WI
Partner: NaftoGaz: 10% WI
(i) Partner: NaftoGaz: 10% WI; (ii) OIL: 80% WI
DSC Cost $m
$18
$9
$11
$19
$57
Cost Estimate of Bidding Process
TOTAL COSTS
Exch. rate $/£
CHANGE IT!
DSC Average
Working Interest
in the 20 Blocks:
CHANGE IT!
Contingency
CHANGE IT!
Cost (Invoicing
Currency)
BASE CASE (Hopefully a central case estimate; i.e.: as likely to be too low as too high)
(I) Fees
Phase I (Select 20 Blocks from 57 Blocks)
Phase II (Prepare and submit full bids for best ten Blocks from 20 Blocks)
(II) Government of India Data, assuming DSC pays only its share of the data cost for an average [90%]
working interest in 20 Blocks.
(III) Software, Subscriptions, Books
(IV) Hardware
(V) Flights
(VI) Commissions payable to NaftoGaz if Blocks are won
(VII) Success Fees paid to consultants who successfully introduce DSC to an offshore operator
(VIII) Consultancy fees paid for specialist tax and legal advice, (Crisil) oil & gas policy advice, and Oil &
Gas Academics at ISM (Dhanbad) and IIT (Mumbai)
Total Cost of BASE CASE
2.05
90%
10%
Cost (US Dollars)
Inc. 10% contingency
£92,000
£846,000
$1,907,730
$933,534
$1,026,887
$745,951
$135,507
$150,200
GUESS
GUESS
$820,546
$149,058
$165,220
$1,000,000
$500,000
GUESS
N/A
$207,460
$750,000
$6,526,901