Economic Evaluation of Upstream Technology

Beyond NPV & IRR: touching on intangibles

Massimo Antonelli Paolo Boi
Alberto F. Marsala Dean Cecil Bahr
Nicola De Blasio Lorenzo Dondi
Giorgio Vicini Andrea Mastropietro
Vincenzo Di Giulio Edoardo Patriarca
Budi Permana
Kokok Prihandoko
Ramin Soltani
Yermek Zhakashev

Eni Corporate University Scuola Mattei

 Beyond NPV & IRR

1. Alternative indicators for tangibles

2. Intangible benefits

3. Conclusions

Eni Corporate University Scuola Mattei

 Beyond NPV & IRR

1. Other indicators for tangibles

2. Intangible benefits

3. Conclusions

Eni Corporate University Scuola Mattei

 1. Other indicators for tangibles
COST SAVING

• incremental NPV / R&D costs

• average incremental NPV per application / average application costs
• potential cost saving per application / R&D costs
• potential cost saving per application / application costs

PRODUCTION INCREASE

• value of average incremental production per application / R&D cost

• value of average incremental production per application / application costs

EXPECTED LIFE OF THE TECHNOLOGY

• R&D costs / expected life of the technology

• expected life of the technology / years of R&D

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 Other indicators for tangibles

LOW PRICE SCENARIO - 18 $/bbl

MULTIPHASE MULTIPHASE
CROSSWELL EXPANDABLE
BOOSTING BOOSTING
SEISMIC TECHNOLOGIES
COST SAVING OFFSHORE ONSHORE
incremental NPV
incremental NPV/ R&D
/ R&D costs
costs 19,14 8,20 0,20 0,07
avrg incremental NPV per appl. / avrg appl. costs 59,44 n.a. 0,94 1,54
potential cost saving per appl. / R&D costs 0,49 0,03 0,31 0,00
potential cost saving per appl. / appl. costs 1,52 n.a. 1,47 0,00

MULTIPHASE MULTIPHASE
CROSSWELL EXPANDABLE
BOOSTING BOOSTING
SEISMIC TECHNOLOGIES
PRODUCTION INCREASE OFFSHORE ONSHORE
value ofavrg
value of avrgdelta
delta production
production perper appl.
appl. / R&D
/ R&D costscosts 13,08 39,00 0,26 0,21
value of avrg delta production per appl. / application costs 40,64 n.a. 1,25 4,75

MULTIPHASE MULTIPHASE
CROSSWELL EXPANDABLE
BOOSTING BOOSTING
SEISMIC TECHNOLOGIES
EXPECTED LIFE OF THE TECHNOLOGY OFFSHORE ONSHORE
R&D costs/ /expected
R&D costs expected lifelife
of of
thethe technology
technology [k€/anno]
[k€/anno] 103,32 48,72 2,79 1,63
expected life of the technology / years of R&D 5 10 0,79 0,79

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 Beyond NPV & IRR: intangible assessment

1. Other indicators for tangibles

2. Intangible benefits

3. Conclusions

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 How to Measure Intangibles

 Market Capitalization

 Return on Invested Capital

 Scorecards

 Direct Measure of Intellectual Capital

 Brand Valuation

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 How to Evaluate Intangibles

 Market Capitalization
Measure of the difference between a company’s market
capitalization and book value
at Corporate level

 Return on Invested Capital

 Scorecards

 Direct Measure of Intellectual Capital

 Brand Valuation

Eni Corporate University Scuola Mattei

 How to Evaluate Intangibles

 Market Capitalization

 Return on Invested Capital

Comparison berween the ROIC of the firm and an industry
reference index. The spread gives the value creation capabilities
of Intangible assets of the firm
at Corporate level
 Scorecards

 Direct Measure of Intellectual Capital

 Brand Valuation

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 How to Evaluate Intangibles

 Market Capitalization

 Return on Invested Capital

 Scorecards
It allows to define a rating of Intangible assets on the basis of a set
of key parameters (indicators) set for a specific asset
Specific to Single Asset

 Direct Measure of Intellectual Capital

 Brand Valuation

Eni Corporate University Scuola Mattei

 How to Evaluate Intangibles

 Market Capitalization

 Return on Invested Capital

 Scorecards

 Direct Measure of Intellectual Capital

Tries to identify the whole cash flows connected with a specific
intangible asset
Specific to Single Asset

 Brand Valuation

Eni Corporate University Scuola Mattei

 How to Evaluate Intangibles

 Market Capitalization

 Return on Invested Capital

 Scorecards

 Direct Measure of Intellectual Capital

 Brand Valuation
Focused on a single intangible asset: the Brand (Company image)
at Company level

Eni Corporate University Scuola Mattei

 Beyond NPV & IRR: intangible assessment

1. Other indicators for tangibles

2. Intangible benefits

3. Conclusions

Eni Corporate University Scuola Mattei

 2. Intangible benefits

Rating system for intangible ASSESSMENT DELLE RICADUTE "INTANGIBLES" DEI PROGETTI DI RICERCA E SVILUPPO

benefits CROSSWELL SEISMIC VALUTAZIONE GLOBALE 1-5 4,45

1 IMPORTANZA STRATEGICA DELLA TECNOLOGIA 4,60

1.1 RILEVANZA NEL PIANO STRATEGICO

Intangible assessment - La tecnologia in questione è parte integrante del piano di business aziendale?
- Lo sviluppo della tecnologia rientra in piani di sviluppo più ampi?
- I risultati attesi della R&D potrebbero causare anche cambiamenti organizzativi (ex. nuove divisioni…)?
- L’azienda mira ad acquisire una posizione di leadership in questa tecnologia?

VALUTAZIONE 1-5 MEDIA PESATA

A qualitative valuation of
4,0 0,80

1.2 RILEVANZA SUL BUSINESS ATTUALE

intangible benefits for different - Esistono problemi che la compagnia può risolvere solo con questa tecnologia?
- Il mancato sviluppo della tecnologia potrebbe provocare un gap competitivo per la azienda?

technologies based on an - La tecnologia rafforza la posizione aziendale in un’area tecnica in cui era carente?
- La tecnologia sotto studio permetterà di:
Affacciarsi su nuovi mercati, in nuovi ambiti competitivi?
assessment methodology. Fornire nuovi servizi/prodotti?
Far crescere il business attuale?
Collaborare in partnership strategiche?
This methodology allows us to VALUTAZIONE 1-5 MEDIA PESATA

rank technologies based on 5,0

1.3 RILEVANZA SUL BUSINESS POTENZIALE

1,50

their relative contribution to - Quante applicazioni della tecnologia sono previste in futuro?
- Per quale arco di tempo si pensa di ottenere benefici dalla tecnologia?

total corporate intangible value. - Esiste una tecnologia equivalente all’esterno? E’possibile acquistarla?
- Sarà possibile in seguito vendere la tecnologia?

VALUTAZIONE 1-5 MEDIA PESATA

5,0 1,50

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 Intangible assessment
Strategic relevance of the technology (strategy)
• Relevance in strategic plan
• Relevance in current business
• Relevance on potential business
• Synergy effects on overall portfolio

Visibility, reputation, partnership (external)

• Partnership
• Visibility
• HSE & Social
• Excellence level

Corporate know-how improvement (internal)

• Level of technology innovation
• Information sharing
• Ownership - IP

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 Intangible assessment

GLOBAL
4,45 EVALUATION

1 STRATEGIC RELEVANCE OF THE TECHNOLOGY EVALUATION 1-5 0,33

0,33 4,60

1.1 RELEVANCE IN STRATEGIC PLAN 4,0 micro peso 0,20

1.2 RELEVANCE IN CURRENT BUSINESS 5,0 micro peso 0,30
1.3 RELEVANCE ON POTENTIAL BUSINESS 5,0 micro peso 0,30
1.4 SYNERGY EFFECTS ON OVERALL PORTFOLIO 4,0 micro peso 0,20

2 VISIBILITY, REPUTATION, PARTNERSHIP 0,33 4,25

2.1 PARTNERSHIP 4,0 micro peso 0,35

2.2 VISIBILITY 5,0 micro peso 0,35
2.3 SOCIAL REPUTATION 1,0 micro peso 0,10 WEIGHTS
2.4 EXCELLENCE LEVEL 5,0 micro peso 0,20

3 CORPORATE KNOW-HOW IMPROVEMENT 0,33 4,50

3.1 LEVEL OF TECHNOLOGY INFORMATION 5,0 micro peso 0,50

3.2 INFORMATION SHARING 4,0 micro peso 0,25
3.3 CHANGES IN INTERNAL STRUCTURE 4,0 micro peso 0,25

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 Intangible assessment

Strategic relevance

4
CROSSWELL SEISMIC
(4,45)
3

EXPANDABLE 2
TECHNOLOGIES
(3,65) MULTIPHASE
1 BOOSTING
(1,77)

Know-how improvement Visibility, reputation, partnership

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 How to quantify intangibles

After generating a ranking of the technology, we estimated the

contribution of each technology to the total intangible value of the portfolio

But… what is the whole intangible value of the technology portfolio?

We assumed 3 different values for overall intangibles

- R&D expenses (100 mln € per year, structure costs included)

- 3 % of E&P revenues
- 5 % of E&P revenues

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 How to quantify intangibles

By means of the rating obtained under the “Intangible Assessment”

procedure, we can try to distribute intangible value of R&D over the
three technologies considered

Intangible Values (million €)

Technology 5% E&P Income 3% E&P income 100 million €

Crosswell Seismic 330 198 43
Multiphase Boosting 128 77 17
Expandable Technologies 269 161 35

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 Putting it all together – total value of technology
Crosswell Seismic - Scenario 1C

19500

14500

9500

4500

-500
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Flussi economici [k€] Valore intangibile Crossw ell S. [k€]

Tangibles only With intangibles

IRR 460% IRR 735%
NPV 58 mill € NPV 101 mill €

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 Beyond NPV & IRR: intangible assessment

1. Other indicators for tangibles

2. Intangible benefits

3. Conclusions

Eni Corporate University Scuola Mattei

 3. Conclusions

It is challenging to find a simple method to assess the value of an R&D

project taking into account intangible and tangible values

It is useful taking into account a combination of different assessment

methodologies in order to estimate the overall value of a technology.

NPV
INDICATORS
IRR

INTANGIBLE
ASSESSMENT

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 Thank you for your attention

Eni Corporate University Scuola Mattei