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Carson Des Champs | Rachel Lee | Trey Murphy | Gordon Tsai | Saad Usman
BP Hellios Challenge December 9, 2014
Optimizing Working CapitalLNG Carrier and Utility Scenarios
Introduction | Who We Are
Gordon TsaiMay ‘17
Business HonorsPetroleum
Engineering
Rachel LeeMay ‘17
Business HonorsFinance
Trey Murphy Saad UsmanMay ‘17
Business Honors Finance
Carson Des ChampsMay ‘16
Accounting
December ‘15Finance
EMP Program
Market Environment
Proposal ImplementationProject Background Conclusion and
Next Steps
3,250 Employees 140+ Countries
2.485 Million barrels/day
550,000 Transactions
BP Integrated Supply & Trading Background
Commercial face of BP Houston, Chicago, London, Calgary, & Singapore
Range of products
Compete in a capital intensive environment
Market Environment
Proposal ImplementationProject Background Conclusion and
Next Steps
Time Spreads (Daily vs. Term
Deals)Fixed Price Trading
Financial vs. Physical
Buying pipeline transportation from
receipt point to delivery point for a
fee
Types of Trades
Market Environment
Proposal ImplementationProject Background Conclusion and
Next Steps
Job Functions of IST division
Trading Consideration
s
Weather Forecasts Planned
and Unplanned Outages (nuclear plants)
Pipeline Maintenanc
eLake/River Levels and
Flow Forecasts
Gas Storage Levels
Market Pricings
Market Environment
Proposal ImplementationProject BackgroundConclusion and
Next Steps
How can BP’s IST division better manage working capital?
Market Environment
Proposal ImplementationProject BackgroundConclusion and
Next Steps
Managing Working Capital
Balancing of current assets & current liabilities
Required to meet short term debt obligations/expensesEnsure liquidity while preventing excessive idle capital
Ensures a company has sufficient cash flow
Market Environment
Proposal ImplementationProject BackgroundConclusion and
Next Steps
Problem Introduction
o Tolling agreement to process over 4.4 million tons per annum of LNG
o Approximately 6 shipments per month for 20 yearso Each shipment ties up working capital
Working capital tied up for extensive periods of time
Profitable opportunities in the IST division are not capitalized upon
Freeport LNG Partnership
Market Environment
Proposal ImplementationProject BackgroundConclusion and
Next Steps
Invoice Discounting | LNG Exports
Overview• BP enters into a repurchase agreement with a
bank to profit from long-term LNG contracts immediately Why does it work?
• After immediately receiving the cash flows from the long term agreements, the IST division can earn a higher rate of return than the discount given to the bank
Market Environment
Proposal ImplementationProject BackgroundConclusion and
Next Steps
Invoice Discounting | Freeport LNGAssumptions
Valuation (per shipment)
Cubic Meters of LNG
133,848
MCF of Dry Gas
2,836,098
Bank Purchase Price $28,533,416.58
BP Profit $587,601.22,
Assumptions & Drivers
Days 43BP Annualized Hurdle Rate 25%BP Adjusted Hurdle Rate 2.66%
Bank Annualized WACC 5.03%
Bank Adjusted WACC 0.58%
Risk Premium 0.25%
Bank Hurdle Rate 0.61%
Projected profit per year: $42,307,287.72
Market Environment
Proposal ImplementationProject BackgroundConclusion and
Next Steps
Alternative Case | CenterPoint Houston
Utility OperationsDiscounting Cash
Flows
Discounting Power Purchase Agreements
Market Environment
Proposal ImplementationProject BackgroundConclusion and
Next Steps
Alternative Case | CenterPoint Houston
Negotiate Discount
Sell Receivable
s
Continue Trading
Operations
Market Environment
Proposal ImplementationProject BackgroundConclusion and
Next Steps
Alternative Case | CenterPoint EnergyBank Annualized WACC 5.03%
Risk Premium 0.25%
Bank Hurdle Rate 5.28%
MMBtu/day 15,000
Price/MMBtu $10
Value of 2 Year Contract 103,857,750
Profits in Year 1 $25,964,437.50
Profits in Year 2 $32,455,546.87
Total Profit $58,419,984.37
Projected profit first year: $25,964,437.50
Market Environment
Proposal ImplementationProject BackgroundConclusion and
Next Steps
Risks
Currency Risks
LNG Price Fluctuatio
ns
Theft, Loss, Piracy
Fixed Contract
Market Environment
Proposal ImplementationProject Background Conclusion and
Next Steps
$25,964,437.50
$42,307,287.72
CenterPoint Energy
LNG Carrier
Comparisons
Repurchase Agreement
Discounted Receivables
Profit