Oil & Gas NAV Modeling

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NAV overview
Net asset value (NAV) in theory
The NAV approach is based on the theory that the value of the E&P company is based on
the cash flows stemming from its existing assets, net of liabilities.
Existing proved reserves are blown-down (reduced to zero) as they get produced over a
certain future period.

Major considerations/assumptions in NAV modeling

Proved oil and natural gas reserves

Crude oil and gas price assumptions
Discount rate
Future production profile
Royalties and taxes
Production costs
Future development costs
Future abandonment and dismantlement costs

NAV modeling

Make assumptions for:

% of total development costs per year

Annual oil production decline

Annual natural gas production decline

Reference from SEC PV-10

section (OXYs 2006 10-K)

NAV modeling
Reference the following from the core model:

2006 year-end crude oil reserves

2007-2013 oil production

2007-2013 oil price

Apply crude oil production decline assumptions to forecast oil production beyond the
projection period
Input crude oil price assumptions beyond the projection period

NAV modeling
Reference the following from the core model:

2006 year-end natural gas reserves

2007-2013 natural gas production

2007-2013 natural gas price

Apply natural gas production decline assumptions to forecast natural gas production
beyond the projection period
Input natural gas price assumptions beyond the projection period

NAV modeling
Calculate oil revenues (oil price x oil production)
Calculate natural gas revenues (natural gas price x natural gas production)
Calculate total revenues

NAV modeling
Reference production costs per boe through 2013 from the core model
Input production cost assumptions beyond the projection period
Calculate development costs based on development costs per year assumptions inputted
earlier

NAV modeling
Calculate total pre-tax cash flows (revenues production costs development costs)
Reference tax rate through 2013 from the core model and input tax rate assumptions
beyond the projection period
Calculate after-tax cash flows

NAV modeling
Calculate present value of all after-tax cash flows

NAV modeling
Input assumptions for undeveloped acreage valuation and calculate total value of the E&P
segment

NAV modeling

Reference 2007 chemicals segment EBITDA from the core model

Input EV/EBITDA multiple (derived from comps analysis)
Calculate the value of the chemicals segment
Calculate Oxys implied enterprise value

NAV modeling
Reference 2006 year-end debt and cash balances from the core model
Reference shares outstanding calculated earier in the DCF tab
Calculate share price