The Tyra Redevelopment: A Case Study and Valuation in a Low Oil Price Regime: Valuation of an Oil and Gas Project

Julie Bendix

Student thesis: Master thesis


In the fall of 2014 the oil price began to drop. It plummeted. Causing bleeding numbers in the oil and gas industry. Initially the drop was expected to be short lived. 2016 have passed and the oil price is still halved compared to the pre drop level. The sudden change in oil price can be attributed to an increase in oil supply from North American tight oil and from the OPEC. This supply battle coincided with a slowing of Chinese economy causing the demand for oil to be less than expected.
Meanwhile in Denmark, the largest and oldest gas producing field, Tyra, face the choice between reinvestment in a rebuild of the platforms that are currently sinking into the water or full abandonment. The Tyra field still has a substantial amount of remaining resources that the owners, the DUC, are able to extract. However, the profitability of the field is threatened by the low prices.
The framework used to study the case of the Tyra redevelopment will be constructed by two parts. A strategic analysis of the oil and gas industry environment using a PESTEL analysis and the valuation analysis using the DCF model and a real option framework using binomial option pricing.
From the PESTEL we learn that the economic environment is currently growing at very slow rates, which also explains the low demand for oil and that the popularity of oil in the public eye are diminishing as more sustainable solutions are becoming available. The political impact will make or break the future of the oil and gas industry. As the analysis shows, the taxes are subject to change with changing governments.
The DCF model yield an unattractive investment. The NPV of the expected future cash flows are - 1,8 Billion DKK. The real option approach includes the upside of the oil price volatility values the Tyra field at 6 Billion DKK.
The conclusion on this thesis is the recommendation that the Tyra field should be re-build. The economy is expected to increase growth eventually, increasing demand and raising prices, and because the alternative to DCF-result is -15 B DKK in abandonment costs. When combing the information from the DCF model and the upside potential from the real option price the decistion to re-invest seem reasonable.

Educations, (Graduate Programme) Final Thesis
Publication date2017
Number of pages82