The Gas Model of CypRus

This model is very simplistic for many reasons but for a quick reference I can mention the following, since many of you asked about:

-The project is unlevered without loan which can boost profits but this is not a restricting hypo for the Cyprus case (low tax environment) and the diffuculty they face (due to their rating) to fund the project.
-The price has a cap determined by the level of prices in Asia if exported and a floor if consumed in Cyprous in which case the project can further benefit the island through import energy savings. This projects are not priced on the NBP spot but with LT oil indexed contracts. Prices can be higher than 17$/MMBtu for 2013 level as determined in ASIA by the long term oil/crudes indexed contracts.
-The model does not account the probabilities of success or failure or any optionality.
-The model does not account the lag of experience and the royalties which can be up to 50% or higher split between Goverment and Contracting companies.
-At best production will start at 2020 and not right now or in 7years
-Construction interest is not included and its very importanCyprGas Theodorou
-the NPV as calculated it seems to me that refers to the cash flows to the firm

CyprGas Reuters-BPt for a 7year construction period

I welcome your comments. I attach both models from Reuters and a version of mine open, in order to play with, in which I include some sensitivities for the most important factors to my opinion whcih are the % of COGS and the price of gas.

From my calculations in an enhanced version I come up with a cash flow gas benefit up to 6,5%/a of Cyprous GDP based on ASIA prices with 50% probability of success.

3 Comments

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3 responses to “The Gas Model of CypRus

  1. Aristos Doumanis

    I think you are a little optimistic with pricing and have not factored the impact of Shale Gas and Coal seam Gas which will have huge affect on major Gas projects

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