Economic Evaluation of Upstream Technology

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Economic Evaluation of Upstream Technology
Beyond NPV IRR touching on intangibles
Paolo Boi Dean Cecil Bahr Lorenzo Dondi Andrea
Mastropietro Edoardo Patriarca Budi Permana Kokok
Prihandoko Ramin Soltani Yermek Zhakashev
Massimo Antonelli Alberto F. Marsala Nicola De
Blasio Giorgio Vicini Vincenzo Di Giulio
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Beyond NPV IRR

• Alternative indicators for tangibles
• Intangible benefits
• Conclusions

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Beyond NPV IRR

• Other indicators for tangibles
• Intangible benefits
• Conclusions

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1. Other indicators for tangibles

• COST SAVING
• incremental NPV / RD costs
• average incremental NPV per application /
  average application costs
• potential cost saving per application / RD
  costs
• potential cost saving per application /
  application costs

• PRODUCTION INCREASE
• value of average incremental production per
  application / RD cost
• value of average incremental production per
  application / application costs

• EXPECTED LIFE OF THE TECHNOLOGY
• RD costs / expected life of the technology
• expected life of the technology / years of RD

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Other indicators for tangibles
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Beyond NPV IRR intangible assessment

• Other indicators for tangibles
• Intangible benefits
• Conclusions

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How to Measure Intangibles

• Market Capitalization

• Return on Invested Capital

• Scorecards

• Direct Measure of Intellectual Capital

• Brand Valuation

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How to Evaluate Intangibles

• Market Capitalization

Measure of the difference between a companys
market capitalization and book value at
Corporate level

• Return on Invested Capital

• Scorecards

• Direct Measure of Intellectual Capital

• Brand Valuation

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How to Evaluate Intangibles

• Market Capitalization

• Return on Invested Capital

Comparison berween the ROIC of the firm and an
industry reference index. The spread gives the
value creation capabilities of Intangible assets
of the firm at Corporate level

• Scorecards

• Direct Measure of Intellectual Capital

• Brand Valuation

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How to Evaluate Intangibles

• Market Capitalization

• Return on Invested Capital

• Scorecards

It allows to define a rating of Intangible assets
on the basis of a set of key parameters
(indicators) set for a specific asset Specific
to Single Asset

• Direct Measure of Intellectual Capital

• Brand Valuation

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How to Evaluate Intangibles

• Market Capitalization

• Return on Invested Capital

• Scorecards

• Direct Measure of Intellectual Capital

Tries to identify the whole cash flows connected
with a specific intangible asset Specific to
Single Asset

• Brand Valuation

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How to Evaluate Intangibles

• Market Capitalization

• Return on Invested Capital

• Scorecards

• Direct Measure of Intellectual Capital

• Brand Valuation

Focused on a single intangible asset the Brand
(Company image) at Company level
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Beyond NPV IRR intangible assessment

• Other indicators for tangibles
• Intangible benefits
• Conclusions

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2. Intangible benefits

• Rating system for intangible benefits
• Intangible assessment
• A qualitative valuation of intangible benefits
  for different technologies based on an assessment
  methodology.
• This methodology allows us to rank technologies
  based on their relative contribution to total
  corporate intangible value.

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Intangible assessment

• Strategic relevance of the technology (strategy)

• Relevance in strategic plan
• Relevance in current business
• Relevance on potential business
• Synergy effects on overall portfolio

Visibility, reputation, partnership (external)

• Partnership
• Visibility
• HSE Social
• Excellence level

Corporate know-how improvement (internal)

• Level of technology innovation
• Information sharing
• Ownership - IP

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Intangible assessment
GLOBAL EVALUATION
WEIGHTS
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Intangible assessment
Strategic relevance
Know-how improvement
Visibility, reputation, partnership
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How to quantify intangibles

• After generating a ranking of the technology, we
  estimated the
• contribution of each technology to the total
  intangible value of the portfolio
• But what is the whole intangible value of the
  technology portfolio?
• We assumed 3 different values for overall
  intangibles
• RD expenses (100 mln per year, structure costs
  included)
• 3 of EP revenues
• 5 of EP revenues

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How to quantify intangibles
By means of the rating obtained under the
Intangible Assessment procedure, we can try to
distribute intangible value of RD over the three
technologies considered
Intangible Values (million )
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Putting it all together total value of
technology
Crosswell Seismic - Scenario 1C
With intangibles IRR 735 NPV 101
mill
Tangibles only IRR 460 NPV 58
mill
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Beyond NPV IRR intangible assessment

• Other indicators for tangibles
• Intangible benefits
• Conclusions

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3. Conclusions
It is challenging to find a simple method to
assess the value of an RD project taking into
account intangible and tangible values It is
useful taking into account a combination of
different assessment methodologies in order to
estimate the overall value of a technology.
NPV IRR
INDICATORS
INTANGIBLE ASSESSMENT
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Thank you for your attention