The oil industry has nowadays reached its peak in Libya. The aim of this report is to evaluate the Amal Field – Block (90/91), which is reported to be located in the eastern part of Sirte Basin, which is 50 km north of Augulia oasis, Libya. The area of the plant is reported to occupy 100, 000 acres and includes eight various reservoirs, depths of which range from 2, 300 to 12, 000 feet below the surface of the earth.
The aim of the report is to provide information about the infrastructure of the plant, to accentuate available and discoverable oil and gas reserves and deposits, to identify oil management operators currently running the plant, to evaluate financial performance of the company with the accent on the net present values of the discussed oil plant and capital-operational costs, fiscal regime of the business operation thereof, and commodity pricing policy.
The second part of the report is majorly focused on the financial performance of the company, with the specific emphasis put on additional valuation parameters. In particular, the report addresses internal rate of return, profitability index entitlement production, and working interest, which have been destined to improve the working process. Further, the report provides sensitivity analysis of the NPV analysis with changes in commodity prices, discount rates, production, and key fiscal terms.
Additionally, the report accentuates the cash flows channeled by the enterprise and the way the assets are managed by the discussed business entity.
Overall, this report has been designed for the needs of prospective investors of the company. In order to raise the attractiveness of the proposition, the paper is confined to the evaluation of the change in fiscal policies of the enterprise.
General Background of the Plant
This part of the report has been compiled to provide general information about the infrastructure of the company. Armal field, an oil-generating plant is located in the eastern part of the Sirte basin, which in its turn is located approximately 50 km north of the Auglia oasis, the sovereign republic of Libya. Amal spatially occupies the territory of more than 100, 000 acres. Eight separate and independently operable reservoirs are located on the territories in question. The depth of oil reservoirs is ranging from 2, 300 to 12, 000 feet below the surface of the earth.
The current owner of the enterprise is reported to be Harouge Oil Operations Company, incorporated in the form of joint venture between the National Oil Corporation of Libya and Petro-Canada. The stake of each party in the joint venture is 50%. With the expansion and further exploration of oil reserves in Libya the Canadian party joined the venture in 2007.
Economically, the reserves of the discussed area are still a lucrative opportunity for potential investors since the oasis can be reasonably expected to be exploited until 2017 (provided that todays’ tempos of oil excavation are observed and are neither reduced nor increased). Until the deposits of the area are completely exhausted, the area is expected to generate direct revenues of $ 4, 62 billion.
Technical Characteristics of the Excavated Oil
With regard to technical characteristics of oil produced in the discussed area, it is important to highlight that the oil fully meets the standards imposed by Organization of Petroleum Producers Countries (OPEC). The oil is reported to be 36 to 38 degrees and contains a high wax density. Concentration of sulfur is approximately 0, 45 %, which is known to be an acceptable value for industrial oil in accordance with the standards of the OPEC. After chemical and physical reports regarding the internal structure of oil types was presented and analyzed, the following conclusion can be made. First and foremost, the density ratio of the analyzed oil is reported not to exceed 0, 9855, which is found completely acceptable under the rules and guidelines of the OPEC.
Kinematic Viscosity of the presented types does not exceed 230 (the maximum level), which is within the limits of the best species in the industry. The flash point of the reviewed samples is 60(140) at its minimal level and pour point is 21(69, 8). This indicator slightly exceeds the allowed norm under the guidelines of the OPEC. Nevertheless, the oil is fully applicable for the industrial needs of the enterprise. The oil can be equally processed and utilized for petroleum needs as well. The concentration of Ash stands on the level of 0,05, which implies that this type of petroleum is in fact one of the purest that can be found among the propositions of oil exporters. The maximum concentration allowed by the guidelines and standards of the OPEC is 25, so the concentration at present fully meets industrial needs.
The concentration of sulfur stands at 3, which is also admissible under the standards of OPEC. Moreover, in comparison to the oil produced by the closest competitors, it can be inferred that the oil of the reviewed plant is more competitive.
The sediment in any case does not exceed 0, 15, which is totally acceptable under the standards of the industry. The unified concentration of water combined with sediment does not exceed 0,5 %.
With regard to concentration of metals, it can be stipulated that the concentration of vanadium is 100, the sodium impurity is not higher than 33, and the intermixture of aluminum. The carbon residue and free water impurities of the oil are reported to be fixed on the levels of 12 and 1 respectively.
Overall, it can be concluded that technical characteristics of the oil excavated from the source in question do entirely conform to the industrial needs of the business entities engaged in oil refinery business and for those who are focused on the production of petroleum as well.
Financial Perspective of the Situation
The board of directors has specified that the primary goal of the entire communicational campaign is to increase the value of shares from currently held at 3,3% to the expected 12% by the end of 2013 accounting year. It is widely believed among managers that several strategies can be effective tools to achieve this goal. Both instruments of financial and purely technological natures are to be applied, although this financial approach does seem more efficient, less energy- and cost- consuming. Assuming that the shortest way to increase the value of shares is to reduce the nominal value of the commodities (Kotler, 2012), the prices must be reduced accordingly. Although this mechanism may be detrimental to the revenues of the company, technically, the demand for production of the company will definitely grow. With the growth in consumption of firms’ commodities it is logical to assume that the demand for the shares will gradually rise. In its turn, this strategy will result in the increase of their nominal value (Martin, 2003). The calculations indicate that the price must be diminished by 11% in order to attain 12% growth in shares by the end of the 2013 accounting year.
With regard to available technical remedies that may hypothetically lead to growth in demand for the Zero Coke output, the shortest strategy is to minimize the sugar content in Coke and to reduce the amount of the calories. Naturally, these innovations must be accompanied by the saturated advertising campaign. Moreover, if this method is combined with the financial strategy, it is highly possible that the desired 12% will be achieved within the specified timeframes.
Although some analysts may think that the transaction is profitable for the American Chemical Corporation case, the plant was nevertheless the source of revenue for the firm, although not a major one. With sales transaction operation, this source elapsed, and the funds to close the budget gap were not obtained (due to the fact that Dixon finance the transaction via debt-related strategies and, therefore, the cash was not obtained by the seller) .
As an illustration, while the closest competitors of the company managed to increase their revenues between the period of 1977 and 1988 (by 11 million Dow Chemical; by 2million $ Du Pont, and by 4 $ million and 8 $ million Union Carbidge) the sales and respectively the net income accrued by the American Chemical remained almost at the same level.
Ways to Increase the NPV of the targeted Plant
The first solution is to borrow from the bank the deficit financial funds in order to refinance the sectors in the firm, which need industrial and production improvements first of all. In particular, it is highly advisable for the top-management of the company to invest in the scientific and related industrial research in order to innovate the output of the firm to attract new customers or to increase the price for existing commodities, but at the same time, to ensure that the demand for the commodities of the firm do not drop down.
The Cash Flow
The decision of the counteragent in the transaction in question (i.e. the decision to purchase the plant) to finance it by means of borrowing mechanisms caused a considerable gap in the financial environment of the company. This gap must be closed by financial management of the company in any case.
The first option is to repel the transaction and to use the producing capacities and sales of the plant to accrue revenues. However, this strategy is highly unadvisable as it may damage commercial reputation of the company.
More viable option for the company is to negotiate a loan in the banking institution or to ask the buyer of the plant to employ mechanisms other than debt financing to cope with the transaction.
Having summarized the main points of the conducted case study, several inferential conclusions can be made. First and foremost, technically the produced oil entirely meets industrial demands of the overwhelming majority of the petroleum-oriented and chemical corporations since chemical parameters of the produced oil fully correspond to contemporary industrial standards. Secondly, geographical location of the plant and the remaining deposits of oil clearly suggest that the facilities of the reserves can still be regarded as a lucrative opportunity for existing and prospective investors of the enterprise. Besides, the fact that deposits are anticipated to be operable within the following ten years and almost $ 4,2 billion are projected to be generated.
As far as the cash flows are concerned, it is necessary to highlight the fact that since the saldo balance remains positive, investments made into this business venture can be regarded as successful.