Stage 1 models – Project Cashflow Models
The objective of this stage is to put together a model of the cashflows of your project (“money in, money out”) both historically –in the case of projects already in production– and making projections for the future, using only publicly available company documents, industry benchmarks or other data.
This is before any consideration of the fiscal regime: the taxes, allowances, and other financial terms set in contracts, laws and regulations. Sounds simple, but is a critical foundation for progressing into analysis of sharing under the fiscal regime. Getting comprehensive data is the biggest challenge we face.
As guidance on how to build a Stage 1 model, you can watch “Building a Stage 1 financial model”: four modeling sessions where Alistair Watson –Modeler and Exceltrovert Extraordinaire–, with comments and questions by Johnny West –OpenOil’s founder–, builds a Stage 1 model from scratch.
Before getting into modeling the fiscal regime it is critical that we first understand the economics of the underlying project itself. How profitable is it? How long has it been in production? How long does it have left? What are the major moving parts of the project? What production, prices or costs are most material to the analysis? And so on.
It is important to understand that although the purpose of a Stage 1 model is to build towards Stage 2, prefiscal (often called pretax) cash flow models can stand by themselves as useful contributions to public knowledge. Partners will be encouraged to publish these models as products in their own right.
Because we have now reached a stage where data access and evaluation is unpredictable, it is harder to forecast the total amount of time required. But an indicative time might be five elapsed working days to produce, and another two days to check and audit the model.
In our experience gathering a comprehensive and consistent set of data for production, prices and costs may prove a significant challenge for some projects, while for others a full data set might be available “off the shelf” in a feasibility study or SEDAR technical report.
For your data search, we invite you to check on Aleph, a database of corporate filings from the extractive industries recently developed by Open Oil.