Developing a fair and robust energy policy
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Developing a Fair and Robust Energy Policy. Frank Blaskovich Blaskovich Services, Inc. Goals & Approach Model Design & Features Policy Development Example Summary. Slide 2. AGENDA. Slide 3. GOALS & APPROACH. Fair, robust policy Uncertainty difficult to quantify

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Developing a Fair and Robust Energy Policy

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Developing a fair and robust energy policy

Developing a Fair and Robust Energy Policy

Frank Blaskovich

Blaskovich Services, Inc.


Developing a fair and robust energy policy

Goals & Approach

Model Design & Features

Policy Development

Example

Summary

Slide 2

AGENDA


Developing a fair and robust energy policy

Slide 3

GOALS & APPROACH

  • Fair, robust policy

  • Uncertainty difficult to quantify

  • Technical and non-technical factors

  • Start simple, add complexity

  • Process most important


Developing a fair and robust energy policy

Slide 4

MODEL DESIGN & FEATURES

  • System Dynamics & Feedback

  • Oil Production & Economics

  • State & Producer

  • Maximize NPV


System narrative

Slide 5

SYSTEM NARRATIVE

Energy Production

Producer

State


System narrative1

Slide 6

Higher Production => Higher Revenue => Higher NPV

LOWER Taxes & Royalties => Higher Producer Profits =>

Higher Producer NPV

HIGHER Taxes & Royalties => Higher State Revenue =>

Higher State NPV

SYSTEM NARRATIVE


System narrative2

Slide 7

SYSTEM NARRATIVE

Wells to drill

Economic

Facilities

forecast

Producer

Development Plan

Essential Logic of Current Model

Field Development

(3 yr min)

Exponential decline

based on oil reserves

Production

Yes

End of Field Life

Producer Net Revenue

Producer Cash

No

(Abandonment)

(Gross Revenue - State

Flow Positive?

Royalty)

Producer Cash Flow

(Net Revenue - Opex -

State Taxes)


Developing a fair and robust energy policy

Slide 8

SYSTEM MODEL

Field Operations

Oil Production

<Max Well Oil

<Total Wells

Pipeline OPEX

Rate>

Drilled>

Drilling Rate Per

Correlation

Max Field Oil

Year

<DeclinePoint>

Rate

Pipeline OPEX

<Active Wells>

Costs

OPEX Cost Rate

Wells Drilled

Total Wells

Cum Oil

Oil Reserves

Each Year

Drilled

Production

Time Conv Factor

Oil Rate

Pipeline Tariff

<Wells Required>

OPEX Costs

Failure Factor

Drilling Cost Per

Initial Oil Reserves

<Oil Rate>

Well

Decline Rate

State Royalty

<Development

Producer Total

Gross Oil Revenue

Facility Cost

Income

Success Rate

Time>

Costs

<Total Wells

Rate

Drilled>

<CAPEX

CAPEX Costs

State Royalty Rate

Depreciation>

<INITIAL TIME>

<Time>

<EOFL Flag>

Producer Net Oil

Active Wells

<Field Abandonment

<Time>

Revenue

Oil Price

<INITIAL TIME>

Cost>

Max Well Oil Rate

Producer Net

Development Time

Income Before Tax

Decline Point

State Prod Tax

<State Prod Tax

End Of Field Life

EOFL Flag

Rate>

<CAPEX

Producer NCF

<State Income

Expensed>

<Max Field Oil

Before Tax

<Producer Total

Tax>

State Income Tax

Rate>

Costs>

Producer NCF After

<Undepreciated

Tax Last Year

State Oil Revenue

CAPEX Expensed>

Discount Rate

<Producer NCF

State Income Tax

<State Royalty

Producer NCF

After Tax>

Rate

Income>

State NPV

After Tax

Producer NPV

State Cum Oil

Producer Cum

Revenue

NCF After Tax

State Economics

Producer Economics


Developing a fair and robust energy policy

Slide 9

SENSITIVITY RESULTS

State NPV

Producer NPV

Levers

Drivers


Developing a fair and robust energy policy

Slide 10

REGRET ANALYSIS

  • Uncertainties difficult to define

  • Minimize impacts of “worst case” scenarios

  • Regret = difference between best and actual outcomes

  • Multiple futures, wide probability distributions


Developing a fair and robust energy policy

Slide 11

REGRET DEFINITIONS

  • Regret(s,f) = Maximum NPV(f) – NPV(s,f)

  • Relative Regret(s,f) = Regret(s,f) / Maximum Regret(f)

  • Equivalent Regret(s,f) = |State Relative Regret(s,f) – Producer Relative Regret(s,f)|

s = scenario (lever(s))

f = future (driver(s))


Developing a fair and robust energy policy

Slide 12

REGRET EXAMPLE

State NPV

Failure

Maximum NPV

Minimum Regret

Decreasing NPV

Increasing Regret

Tax Rate

Maximum Regret

Future


Developing a fair and robust energy policy

Slide 13

REGRET EXAMPLE

State NPV

State Regret

0.80

(0.2)

0.72

3.8

Regret = 3.8 – 3.8 = 0

0.36

3.1

Regret = 3.8 – 3.1 = 0.7

Tax Rate

0

2.3

Regret = 3.8 – 2.3 = 1.5

Future Oil Price = $100/stb

Initial Oil Reserves = 200 mmstb


Developing a fair and robust energy policy

Slide 14

REGRET EXAMPLE

State Regret

State Relative Regret

0.80

0.72

0

Relative Regret = 0 / 1.5 = 0

0.36

0.7

Relative Regret = 0.7 / 1.5 = 0.4

Tax Rate

0

1.5

Relative Regret = 1.5 / 1.5 = 1.0

Future Oil Price = $100/stb

Initial Oil Reserves = 200 mmstb


Developing a fair and robust energy policy

Slide 15

REGRET EXAMPLE

State Rel Regret

Prod Rel Regret

Equiv Regret

0.80

0.72

0

0.8

0.8

Possible

Solution

0.36

0.4

0.4

0.0

Tax Rate

0

1.0

0

1.0

Future Oil Price = $100/stb

Initial Oil Reserves = 200 mmstb


Developing a fair and robust energy policy

Slide 16

STATE RELATIVE REGRET

Non-optimal solutions


Developing a fair and robust energy policy

Slide 17

PRODUCER RELATIVE REGRET

Non-optimal solutions


Developing a fair and robust energy policy

Slide 18

EQUIVALENT REGRET

Equivalent regret solutions


Developing a fair and robust energy policy

Slide 19

NPV vs PRICE & RESERVES

State NPV Results

Producer NPV Results


Developing a fair and robust energy policy

Slide 20

SUMMARY

  • Fair & robust policies require compromise and consideration of unexpected events

  • System Dynamics & Regret Analysis are useful policy development & analysis tools

  • Other factors also need to be considered


Developing a fair and robust energy policy

Questions or Comments?

Slide 21


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