Strategic Planning and Financial Forecasting

Combining Operational, Contractual, Commodity, and Capital Issues Into Risk-Adjusted Financial Decisions

Reese Energy Consulting works with producers and midstream firms to create financial tools with sensitivity toggles to evaluate the strengths, weaknesses, opportunities and threats of strategic alternatives so leadership teams can make risk-sensitized choices.

These tools incorporate industrywide issues plus client-specific issues, such as operational risks, contractual terms, commodity profile, capital structure, and available liquidity. We also help clients customize the tools and run multi-dimensional “war games”. Since new producers and midstream firms are in the negative cash flow investment phase in the early years, the ability to forecast timing of liquidity needs gives clients more time to plan and execute capital-raising transactions.

REC also helps clients perform financial due diligence on acquisitions and creates economic alternative models to help answer critical questions such as:

  • How much liquidity is needed to activate another rig, what are the sources and costs of the liquidity, and what is the economic benefit (NPV-ROI-ROA-MOIC-IRR) of this additional rig?
  • What is the MOIC on an exit and NPV (after flowing through the waterfall) to the investor and management team to (a) exit in ___ months or (b) invest new capital to increase production/throughput and exit ____ months later?
  • What are the pros, cons, and impacts to the investor and management team of using a bank revolver vs term notes vs preferred equity vs private equity, if production and/or pricing is 50% higher or lower than base case?
  • What is a risk-adjusted capital structure to add new gas plants based on the contract mix, drilling priorities of producers, and downstream capacity issues that may cause throughput to be 50% higher or lower than base case?
  • What is the relative NPV of (a) drilling 1 well per section to convert acreage to “HBP” status vs (b) drilling multiple wells per section to reduce the per well mob-demob-standby costs but paying lease extension costs?
  • What are the forecasted financial ratios (Debt/EBITDA, EV/EBITDA, Recycle, etc) of the strategic decisions and how do they compare to public company/peer ratios?
  • What are the risks, rewards, liquidity impact, and debt capacity issues of selling NGLs and natural gas at the plant tailgate vs taking them in kind and transporting them to market?
  • What is the cross-over breakeven NPV of fixed fee, percent of liquids (POL), percent of proceeds (POP), and keep whole processing contracts under different commodity price assumptions?
  • What is the change in molecular composition from wellhead to gas plant and is the value of liquids that fall out in gathering systems calculated based on molecular composition or heating value?