Insight
Oil and gas valuations – the risky outlook
Report summary
For investors, risks and returns are two sides of the same coin. An asset with a stable, predictable cash flow requires a lower return than a riskier asset. For companies such as Equinor, BP and TotalEnergies holding renewables assets alongside oil and gas, this divergence is already evident with renewables assets being valued at lower discount rates. But there are also big differences in risk profile between different hydrocarbon assets, not all oil and gas projects are the same. What if stakeholders begin to apply differentiated risk expectations within the oil and gas industry? Enter risk-adjusted discount rates where a premium is applied to reflect additional asset risk. When it comes to the valuation of risky assets for transactions, there are obvious benefits. Advantaged assets should command a premium valuation and risk-adjusted discount rates can capture this.
Table of contents
- Executive summary
- Risk and return
- Oil and gas – a myriad of risks
- Discount rates: when to use standard, WACC or risk-adjusted?
-
Risk adjusting assets in the Majors portfolios
- Using the standard NPV10 (nominal) rate
- Scenario 1: risking increases across the entire industry
- Scenario 2: oil is deemed riskier than gas
- Scenario 4: execution risks are elevated
-
Appendix
- Risk categories
- Commodity price (market) risk
- Reservoir (reserves) risk
- Execution (and cost) risk
- Operational risk
- Carbon risk
- Country risk
Tables and charts
This report includes 8 images and tables including:
- Oil and gas risks
- Undiscounted cash flow
- Net present value (10% discount rate)
- NPV at 10% and 15% discount rate
- Value loss going from NPV10 to NPV15
- NPV for country and execution risk
- Value loss for country and execution risk
- Summary table: value loss relative to NPV10
What's included
This report contains:
Other reports you may be interested in
20 July 2021
Lower 48 oil and gas supply: bouncing back, but not immune to the energy transition
Insight
Lower 48 oil and gas supply: bouncing back, but not immune to the energy transition
Lower 48 supply is back, but how will the energy transition affect long-term oil and gas production?
$1,35001 February 2016
Oman Oil and Gas Wall Map
Wallmap
Oman Oil and Gas Wall Map
Our detailed wall map showing the latest information on Oman's oil and gas.
$75001 June 2018
Mexico Oil and Gas Wallmap
Wallmap
Mexico Oil and Gas Wallmap
Wood Mackenzie has produced a detailed wallmap of showing the latest oil and gas information for Mexico.
$750
