ArrowHead Solutions – Asset Development and Financing
ArrowHead Solutions Help Clients Understand Future Markets to Aid Their Asset Development and Financing Decisions
ArrowHead Solutions for Asset Development
New project development is similar to asset valuation, but it is focused and forward looking. It must consider markets after the asset is in place and producing. Quantifying the profitability of potential developments under different assumptions about market drivers is pivotal to determining whether to develop and which developments are most favorable to meeting one’s business objectives.
Examples of asset development decisions:
- Having financed most of the Calpine plants in Texas and California, ArrowHead consultants were able to accurately answer salient questions, such as: Should we invest in Deer Park, Channel, Magic Valley, Russell City, or Bayer with a two on one combined cycle plant with cogeneration offtake? After we pay the capital cost, what will be the rate of return on that investment? If gas price rises, what will our investment look like? What if it falls? If the capital cost turns out to be higher than we planned, what then? Are we still in the money? What if it is lower? What if interest rates on our debt go up? Down?
- Should we develop a copper mine in South America? Should we strip the overburden and put in a mine-site concentrator and/or leaching facility? What price for sulfide concentrate would we get? Cement copper? How would that price vary if we had to pay to ship it to market? What market should we ship it to? What will be the price of copper on the major exchanges? What is the basis differential back to our point of sale? What cost of factors are we going to have to pay? What are the political risks? Exploration risks? Factor cost risks? What is the ultimate risk-return lottery we are facing?
- Should we build an LNG export facility in central Texas to service Eagle Ford and/or other gas sources? What price for gas will we get? What will be the price for exported LNG FOB our plant? Where should any LNG from the plant go? What price will it get? Will the location we send it to have any effect on price, or will prices be fully arbitraged?
How ArrowHead Solutions Help with Asset Development and Asset Financing Decisions
ArrowHead consultants use our unique models to develop probability distributions over prices and quantities for the project performance and coverage throughout the decision time frame needed. They use our assumptions and probabilities or the client’s. They easily adjust the model to include potential new developments to show the market impact and the best choices for meeting their risk-return objectives.
ArrowHead Solutions for Asset Financing
In asset financing questions such as these arise:
- What is the coverage situation on our plant or upstream project?
- Will we be able to service debt requirements, cash requirements, or equity needs?
- How would different types of financing impact our company? Project? Balance sheet? Equity?
- What are the key uncertainties that could drive coverage up or down? Oil price? Gas price? Power price? Basis differentials between them?
How ArrowHead Solutions Help with Asset Financing Decisions
ArrowHead consultants use the ArrowHead models to develop probability distributions over prices and quantities for the project performance and coverage throughout the decision time frame needed. They use ArrowHead assumptions and probabilities or the client’s, based on client preference. They easily adjust the models to include potential new developments to show the market impact of these developments and what profitability and revenue look like under different assumptions about the market drivers and specific probabilities for each assumption. This provides a market-based calculation for profitability and revenue that complements other methods used for making financing decisions.