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

Agenda

Project Background

Market Environment

Proposal

Implementation Risks

Conclusions

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

Market Environment

Proposal ImplementationProject Background Conclusion and

Next Steps

Questions?