Petsec Energy

Petsec Energy is an Australian-listed exploration and production company operating in the Gulf of Mexico and onshore in Louisiana, USA, which together forms one of the world’s leading oil and gas provinces. Petsec also has off-shore investments in the shallow waters of the Beibu Gulf, China.

The Navigator model gives us the capacity to evaluate the cashflow impact of a new opportunity very quickly, and assists in rapid turnaround from potential financiers. If and when we take on debt, it will also enable us to model and anticipate changes in our cashflow outlook, and help us to be pro-active in managing our banking relationships. Feedback from our banks was extremely positive when they were presented with the model - it is in a familiar format, and key assumptions are easily adjusted to facilitate credit evaluation. Fiona Robertson, CFO

Strategy

In order to meet their objectives, Petsec targets exploration and production opportunities in highly-prospective areas. Through extensive use of 3-D seismic data, Petsec undertakes drilling with a high probability of success, to discover resources previously overlooked – or were too small - for larger producers. The company is growing at a rapid and disciplined manner, with a focus on understanding financial returns, and is funded principally by internally-generated cashflow.

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Challenges

Currently Petsec’s in-house valuation software does not provide the flexibility required to analyse the financial impact of potential acquisitions on the group, and like most off-the-shelf packages in the sector, is quite restricted in flexibility and reporting functionality. Petsec’s relationship banks asked for a stand-alone financial model that they could use for analysing the cashflows and debt sizing ratios. Petsec responded to this by investing in the development of a model that could be used by third parties, as well as internally for strategic planning.

Key requirements

Present the Company in a professional way to the project finance banks
Integrate with Aries (the oil valuation software) to synchronise the production data
Capture three production cases (Independent Reserve estimates (P1, P1+P2) and Petsec Internal estimates)
Give flexibility to analyse a portfolio of assets and to switch them on/off easily
A valuation module showing NPV per producing asset under different scenarios
Ability to sensitise for key variables

Solution

Petsec engaged us to design, construct and deliver a financial model which satisfied all their key requirements, and by doing so allowed the borrowing base capacity, based on a portfolio of producing assets, to be determined. This has given Petsec the following advantages in negotiations with the banks

Debt sizing criteria from each bank can be input and immediately assessed
The model is a stand-alone ‘document’ outlining all cashflows of the Company
All key drivers/risks can be sensitised without changes in the base case
Functionality to analyse the impact on cashflow and borrowing capacity of a new producing asset coming online, or an acquisition
A comprehensive ‘Executive Summary’ quickly communicates the ‘big picture’