final report for cima gbc 2015

CIMA- Global Business Challenge

Analysis Report for YJ’s Issues and Strategic Solutions

Consultant Team (Team- King’smandu)

Mr. Ramesh Khadka

Ms. Nita Adhiikari

Ms. Mamata Pathak

Ms. Prasamsha Bhattarai

King’s college, Kathmandu, Nepal International American university

CIMA- Global Business Challenge YJ Oil & Gas Co.

2

Table of Contents

1. Executive Summary ........................................................................................... 3

2. Introduction ........................................................................................................ 4

3. Terms of Reference ............................................................................................ 4

4. Strategic Analysis ........................................................................................... 5-8

3.1 Company Analysis .......................................................................................... 5

3.2 Industry Analysis ............................................................................................ 5

3.3 SWOT Analysis .............................................................................................. 6

3.4 Porter’s 5 Force Analysis ............................................................................. 7-8

5.Financial Analysis ............................................................................................... 8-9

5.1 Financial Ratios .............................................................................................. 8

5.2 Profitability Ratios ........................................................................................... 9

5.3 Risk Position ................................................................................................... 9

6. Issue Analysis and Recommendations ........................................................ 10-15

6.1 Operational and Financial Issues ............................................................ 10-13

6.2 Ethical Issues .............................................................................................................. 14- 15

7. Summary of Issues and Recommendations ................................................ 15-16

8. Appendices ..................................................................................................... 17-24


3

The report analyses and interprets the operation of YJ Company and provides

recommendations towards its objective and betterment. Towards its expansion

and operation plan, test-drilling license for three new reserves has been attained.

Thus, the report has incorporated the different alternatives for financing the

company’s expansion plan by analyzing on the information provided. The report

furthermore, provides insights on the Farm-out offer from LG.

The report is divided into five components which are, Strategic Analysis,

Financial and Operational Analysis, Ethical Analysis, Recommendation and

Annex.

After evaluation of the issues, it is suggested that YJ should finance its test-

drilling for three new sites with both debt and equity financing.

Similarly, YJ should choose Farm-out as decreases the financial burden for

drilling and generates higher revenue than operated by self.

Moreover, the report sheds light on signature forgery and suggests YJ to improve

its supervision and control. Also in the case of militant attack in the field “AAA” it

is recommended to choose among the suggested alternatives quoted in the

report which will help in employee retention.

Similarly, the report analyses the ethical dimension considering two major issues

of- protest by greenbeis parties and bribery and analyses the core aspects of it.

With regard to the ethical issue it is recommended that YJ should involve in CSR

activities and avoidance of impact that are avoidable.


4

YJ, founded in 2005, is a small oil and gas company that is specialised in the upstream

activities and distribution of oil and gas to some vendors. The company was listed on

AIM in 2007. Till date, YJ has been successfully thriving and has three oil and gas fields

in production (AAA, BBB and CCC) out of which one field (AAA) is in Africa and the

other two (BBB, CCC) is in Asia. The company has recently been awarded licences for

three further oil and gas fields (EEE, FFF and GGG). As a result, the share price has

grown from US $ 6.00 per share when it was initially listed on the UK AIM, to US $

32.50. This led to a huge growth in the market capitalization of the company and

enhanced investors’ confidence in YJ’s ability to deliver long-term profits.

YJ have highly skill and experienced geologist and other workforce. Thus, it supervises

the technical operation and its expertise rests with its geology knowledge and its ability

to control the outsourcer as it outsources all its production drilling to external drilling

team and outsourced service personnel.

As YJ is a small company, it has limited access to the immense amount of finance

required for drilling cost that is required to bring oil and gas into production. Recently,

YJ has been approached by a business called with Liquid Gold (LG).

We work as a management consultant with expertise in the oil and gas exploration and

production industry (E&P). We have been appointed by the board of YJ to analyze and

provide recommendation on the current issue faced by YJ.

We also have been asked a briefing paper by the board on what next for YJ. On this

briefing paper we have considered some alternative business operation for diversifying

its business on the energy industry with a sustainable approach. This is included in

Appendix-10 of this report.


5

YJ has been successfully operating with increasing profits and fulfilling the shareholders

objective. But the company faces shortage of finance to expand the business.

Now the major concern for YJ Company is its three new licenses and finding source of

cash flow. YJ Company requires sourcing of funds for three major locations to start

production within two years. A right issue and debt finance is the most appropriate

suggestion to commence the project. Also, farm out would help cash inflow during test

drill and production process.

Natural oil and gas are substantial to human’s life but the reserves are limited in the

earth’s crust. It suggests the need to explore more other natural oil and gas reserves to

lengthen the time of supply of these resources. Since the industry is based on the

resources that are in limited quantity, the industry is prone to risk. While there is a rising

demand to develop an additional production capacity of oil and gas within certain years

to sustain gas consumption in the globe, different issues relating to environmental

sensitivity and ethical concern has made the situation even more complex.

The core activities of the industry always depend on exploration, research, identifying

reserves. The largest proven oil reserves are found in the Middle East with Saudi Arabia

alone having over 20% of the world’s oil reserves. Besides this UK’s North Sea and

areas in USA, Canada and Russia still have substantial reserves. Operating companies,

Drilling Companies, major contractors, Service companies are the variety of company

that exists within oil and gas industry.


6

YJ Company has immense strength and opportunity to transit into a successful

business. While the energy demand is increasing and survey work is going on,

exploration activities would assist company’s objectives.

Innovation and proper internal management add value to the company’s long run

operation. At the present timeframe, YJ Company should consider for expansion and

growth of the business. It is a time to build trust among its customer and investors.

Utilizing its strength helps company to cope with the threats and convert weakness to its

strength. The research work is carried on which fortunes company to apply and win the

License. Also, the sustainability issue needs to be valued while making business deal.


7

4.4 Porters Five force

YJ Company has mainly two challenge. First the company needs to work for its

expansion to compete profitably among its competitors competing for homogeneous

products.The next is company’s response towards issues raised by greenbies parties

and other environmental groups.

YJ Company has huge potentialities to grow into a successful business.YJ Company

has acquired customer reputation since its successful start up. Seeing the profitability of

the YJ Company, new company may come into the market with even more skills and

technical capability.However, the barrier to entry impose difficulty for new competitors,

YJ Company need to be cautious to increase market share.

Demand, supply and price of petroleum products depends on the availability of

resources,buyers information and sensitiveness towards price,volume of buyers and

products demanded and so on.At a constant global market price of oil and gas ,Buyers

bargaining power is low that is why Oil and gas company can have good earning .When

both demand and power increase from buyer sides,the company cannot maximize

profit.


8

In oil and gas industry, the government plays a deciding role. The government’s

regulation on tax and royalty charge affects the cash flow with in the company .YJ

company has off shore operation so it is likely to be bound from series of regulations of

government who owns the reserve which has direct influence on the profitability.But

when the YJ Company goes for substitute product with low switching cost ,it eventually

lowers the bargaining power of suppliers.

However the threat is low in the present context, people tend to go for renewable

source of energy in the long run being influence by environment sustainability concept

and people’s awareness towards nature conservation.YJ company will face the

probable difficulty at a time when there is increase in demand for petroleum and the

available resources is insufficiently produced.

1

Here what we can find is that the profitability ratios of YJ are constantly increasing from

30.15% in the year 2013 to 32.76% in the year 2014 and 36.47% in the year ending

2015 . It is because of the increase in revenue from the field CCC and the revenue from

the field AAA and BBB.

In particular, the ROE is decreasing simultaneously. This shows that the debt level of YJ

is decreasing. Thus, YJ has the capacity to have more debt finance.

This in-turn has increased the shareholders value making them more confident in their

investment.

1 The Ratio Analysis of the all the ratios are included in Appendix-2.


9

In the year 2014, the decline in liquidity ratio in comparison to the year 2013 because of

decrease in current assets i.e. deferred tax, increase in trade payables and payment of

bank overdraft.

The increase in revenue from existing reserve has increased the liquidity position

significantly in the year 2015. The cash ratio of YJ was 0.42 in the year 2014 and 1.39

in the year 2015. This shows that YJ ability to pay its short-term debts has increased

which resulted in the improvement in the Current and Quick Ratio.

2

The risk position of the business is continuously decreasing from the year 2014 and

2015 in comparison to 2013. The Gearing of YJ has declined persistently from the year

2013 to 2015 which was 0.87 in 2013, 0.69 in 2014 and 0.60 in 2015.

Debt Equity ratio also has declined to 1.52% which was 2.27% in the year 2014 and

6.76% in the year 2013.

Now, YJ have the capacity to pay interest of nearly 5 times that it is paying currently. It

has increased to 4.58 compared to 3.65 in 2014 and 2.26 in 2013. Thus, the feasibility

of YJ to get loans has increased.

2 The Ratio Analysis of the all the ratios are included in Appendix-2.


10

YJ has been successful on winning the licence of the 3 test drilling sites out of four.

Now, YJ is considering agreeing with the government of the respective fields for test

drilling but it has shortage of funds that is required to fund for the test and production

drilling. Here, the total of US $ 153m is required to enhance the test and production

drilling. The amount will fall down to US $123 if the farm-out from LG is agreed.

For, financing the drilling YJ has three possible options which are its internal free cash-

flow, debt financing and equity financing through right issue. All these three source of

finance is not sufficient if it is finance from any of the one source so it is necessary for

sum of all.

The free cash-flow is US $ 26.84 million and maximum amount of US $ 74.44 million

from loan and US $ 74.37 million from equity financing. All these sources cumulatively

will be sufficient enough to finance the test drilling along with a surplus of US $52.65

which can be used for operation and further exploration of reserves and further

requirement of increase in workforce a.3 The surplus also can be used to install RFID

and other IT systems that enhance YJ’s operations.

Before pursuing the drillings YJ also should consider the Agreement, Licence fees with

the government of the concerned oil and gas field. It also should forecast the required

number of employees required for its operation and whom to outsource the drilling the

fields.

3 The calculation of Right Issue, Cash from loan and Free Cash-Flow are included in the Appendices- 1, 4 and 7

Respectively.


11

Therefore, it is suggested for YJ to raise both Equity and Debt Financing while raising

the funds for both test and production drilling. And consider all the above factors for the

issue.

CONDITION-1: Option Payment of US $ 10 Million

LG is offering a farm-out offer before the test drill is completed while normally the

farm-out is negotiated only after the test drill is completed and the extent of oil

and gas reserve is proven. And if the farm out offer is accepted then it would

contribute 47.7% of the total capital required for test drilling for the field GGG.

Thus, it reduces the risk and deals with uncertainty for YJ if the reserve in the

field GGG is not proven.

CONDITION-2: Time for completing the Test Drill

The time required for completing the test drilling is uncertain. Thus, it results in

the loss of profit or increase the possibility of losses for YJ if the test drill is not

completed on time. So, it is necessary that YJ should negotiate the time frame

and make it flexible to some extent.

CONDITION-3: Presence of LG at the Board Meeting

It depends on the policies of YJ. If the policy of YJ is not including any other

parties on discussion of its operation in order to maintain confidentiality, then the

BOD would not consider it. On the other hand, if the field is farmed out then it will

be an obligation to involve LG in the BOD meetings related to the field GGG.

However, YJ can consider involving LG in the board meeting with a contract with

LG for keeping the matter confidential.

CONDITION-4: Escrow Account and Payment to be received

Here, the amount that is to be received on successfully signing of licence with the

government(US $ 2m), on the commencement of the test drill (US $ 2m) and on

completing the test drill and proving the extent of any reserve (US $ 6m). This

ratio of getting the amount for the escrow account should be negotiated and

changer to 3:3:4. This will help YJ in reducing the cost of test drilling more in


12

comparison to the previous ratio. Since, the amount will be more in terms of

present value

CONDITION-5: Price for selling the Reserve

LG wants 10% discount on the normal price (US $ 11m per mmbbl/mmbble) to

buy the proven reserve. This should be adjusted as the price of oil increases by

5% annually on average. Thus, the price of selling a proven reserve is subject to

increase it is recommended to negotiate on the price of selling a proven reserve

and the rate of discount. YJ should either negotiate on selling price of the reserve

to increase it or decrease the rate of discount or not giving a discount at all or a

combination of both.

In conclusion, we can find the farm-out deal to be beneficial for YJ. Firstly, it will

provide almost 50% of the fund required for investing in the test drilling of the site

GGG when the company is in sort of fund required for investing in the new fields.

Secondly, it will generate higher cash compared to that will be generated if the

field is not farmed out.4

This issue can be taken as both operational and ethical issue. The first

dimension of this issue is that the operation of the reserve is done without the

supervision of an engineer which might have result an accident in the reserve

field AAA. The industry is a critical one and safety must be assured to the

maximum limit. Since, a simple negligence will result to a significant accident or

even catastrophic that not only destructs the reserve but also result to deaths of

employees and destruction of the bio-diversity.

The responsible parties for the issue are DrilllT and Mr. Lee Wang. YJ should

approach DrilllT and make necessary agreement and contracts with it which

provides no ground to repeat such mistakes again. And YJ also should aware

DrilllT of consequence of repeating such mistakes will lead to monetary penalty

and termination of the drilling contract. However, before making the final decision

YJ should investigate on who is responsible for the issue.

4 The comparison of the cash that will be generated when farmed out and not farmed out is in the Appendix

Section.


13

Also, YJ should deal with Mr. Wang after investigating on the pay roll and

accounts for who have forged the signature as it is skeptic on why he is worried

on government routine check. If Mr. Wang was found guilty for the forgery than

YJ should fine him and terminate his contract of employment and opt for a new

replacement. However, if he is not found guilty then he must be made obliged to

meet health and safety supervision to the best of his performance. And he should

report all the updates of all the reserves.

Beside, this YJ should implement a RFID system that tracks the information

regarding the attendance and labour turnover. Additionally, in the long-run YJ

should consider implementing an Integrated IT system that not only checks and

provide information on Human resource but also on operations. This will result in

effective and efficient operation of the company.

The issue has posed a problem in retaining the employees in the field “AAA”.

Though YJ have arranged an international security company to provide security

for the risk of terrorist incidents it has been difficult for YJ to retain its employee.

The possible solutions for the issue might be a negotiation with the government

of Africa to provide strong security in the field AAA. Likewise, YJ could implement

a Insurance Scheme for the employees working in the field where by 50% or if

possible 100% of the insurance premium is provided by YJ. Alternatively, YJ

could enforce a “Performance Reward System” where by employees who are

performing well in their task will be rewarded money or other fringe benefits.


14

The issue is mainly related with the sustainable use of the finite resources and

development of renewable energy sources. It also focuses on negligence of the

E&P business on considering the impact on the bio-diversity.

As a policy of YJ, it has always been considering the impact of operation on the

environment. However, it is fact that E&P business will impact the nature

somehow. So, YJ should consider on avoiding the impacts that is avoidable like

unwanted oil spill, disposal of wastes and proper safety standards should be met

in operation.

For the unpreventable losses/impact on environment YJ can do CSR activities

like maintaining a park, donating for education and health of marginalized people

of area of its operation.

And for the sustainability part, YJ must opt to produce renewable source of

energy in the long-run.

Similarly, the CEO must stop using gas guzzler cars like BMW650i because it

spreads a negative message regarding the company that is not concerned with

the sustainable use of fuels and energy.

It can be clear from the case that in many of the countries especially Africa and

Asia bribe is required to get the license for test drilling and production. Therefore,

the question arises whether YJ also should bribe to get the license or not.


15

The issue will not be supported by the business culture of YJ. Also, it is not

legally allowed, if found to be involved in bribery YJ will lose its image in the

market along with huge legal fines.

Alternatively, YJ should establish itself as trusted and high-profile company. Also,

it should maintain good relation with government of countries having oil reserves.

Eventually, all these will outweigh the bribery.


16


17

Appendix-1

Funds that can be raised from Right Issue of Shares:

S.N. Right Issue

Option

Total no. of issued

shares (In

Millions)

Nominal Price of shares (US$

Million)

Market Price of shares (US$)

Discounted Market price (US$)

No of right

shares issues (in Millions)

Fund Raised

from Right Issue (US$

Million)

1. 1 for every 3 held without discount

10 1 35 35 3.33 116.67

2. 1 for every 3 held with discount

of 15% on MP

10 1 35 29.75 3.33 99.167

3. 1 for every 4 held without discount

10 1 35 35 2.5 87.5

4. 1 for every 4 held with discount

of 15% on MP

10 1 35 29.75 2.5 74.37

Notes:

1. Discounted Market price = Market price × (100% - Percentage of Discount)

2. No. of right issue =

3. Fund raised = No. of Right Shares Issued × Discounted Market Price


18

Appendix-2

Ratio Calculations:

S.N.

Ratios

Calculation Formulae

For the year of 2013



A. Profitability

Operation Profit Margin Ratio

×100%

30.15% 32.76% 36.47%

Net Profit Margin Ratio

×100%

16.89% 23.56% 21.70%

Return on Equity

×100%

96.62% 66.45% 45.14%

Return on Assets (Operating Profit)

×100%

22.22% 28.26% 30.52%

Return on Assets (Net Profit)

×100%

12.44% 20.33% 18.16%

B. Financial

Current Ratio

1.4 0.84 1.86

Quick/ Acid Test Ratio

0.62 0.40 1.56

Cash ratio

0.01 0.42 1.39

C. Risk Position

Gearing

0.87 0.69 0.60

Debt Equity Ratio

6.76 2.27 1.52

Interest Covered

2.26 3.65 4.58


19

Appendix-3

YJ’s Oil and Gas Production

Operating Oil and Gas Fields AAA BBB CCC Total Location- Continent Africa Asia Asia

Production in the year 31st March 2015 Oil- bopd (@ $115.30) 1,500 1,200 1,040 3,740

- Mmbbl 0.55 0.44 0.38 1.37

Total Oil Revenue (US $ Million) 63.4 50.7 43.8 157.9

Gas- boepd (@ $19.16) 1,500 2,000 1,950 5,450

- mmbble 0.55 0.73 0.71 1.99

Total Gas Revenue (US $ Million) 10.5 14.0 13.6 38.1

Total Oil & Gas Revenue for the year ended 31st March 2015 (US $ Million)

73.9 64.7 57.4 196


- Mmbbl 0.55 0.44 0.38 1.37


Gas- boepd (@ $20.12) 1,500 2,000 1,950 5,450

- mmbble 0.55 0.73 0.71 1.99



77.6 68 60.3 205.9


- Mmbbl 0.55 0.44 0.38 1.37


Gas- boepd (@21.13) 1,500 2,000 1,950 5,450

- mmbble 0.55 0.73 0.71 1.99



81.4 71.4 63.3 216.2


- Mmbbl 0.55 0.44 0.38 1.37


Gas- boepd (@22.18) 1,500 2,000 1,950 5,450

- mmbble 0.55 0.73 0.71 1.99



85.5 74.9 66.4 226.8


20

Appendix-4

Operating Oil and Gas Fields AAA BBB CCC Total Location- Continent Africa Asia Asia

Production in the year 31st March 2019

Oil- bopd (@ $140.13) 1,500 1,200 1,040 3,740 - Mmbbl 0.55 0.44 0.38 1.37


Gas- boepd (@23.30) 1,500 2,000 1,950 5,450

- mmbble 0.55 0.73 0.71 1.99



89.8 78.7 69.7 238.2

Note: The rate of oil price is adjusted with an average increase of 5% each year.

Fund that can be raised from loan:

Provided conditions are:

1. Long term loan of YJ at 31st march 2014 = $140m

2. Bank of England doesn’t provide BFI’s to lend E&P business 3 times more than

its operating profit.

Fund that can be raised = ($71.48m × 3) - $140m

= 74.44m

Profit or Loss Statement

Year ending 31st March

2015 (US $ Million)


2016 (US $ Million)


2017 (US $ Million)

Revenue 196.00 205.9 216.2 Cost of sales (101.92) (107.91) (112.36)

Gross profit 94.08 98.89 103.84 Distribution Cost (0.5) (0.52) (0.55) Administrative Expenses (22.1) (23.20) (24.36)

Operating Profit 71.48 75.17 78.93 Finance Income 0.1 0.1 0.1 Finance Expenses (15.6) (15.6) (15.6)

Profit before tax 55.98 59.67 63.43 Tax expense @ 24% (13.44) (14.32) (15.22)

Profit for the Period 42.54 45.35 48.21


21

Appendix-5

Statement of Financial Position:

As at 31st March 2015

US $ Million

US $ Million

Non-current assets (net) 191.00 Current Assets: Inventory 15.0 Trade Receivables 8.5 Deferred Tax - Cash and Cash Equivalents 70.08

Total Current Assets 93.58

Total Assets 284.58

Equity & Liabilities: Equity Issued Share Capital 10 Share Premium 50 Retained Earnings 34.24

Total Equity 94.24 Non-current Liabilities: Long-term Loan 140 Current Liabilities: Bank Overdraft - Trade Payables 36.9 Tax payables 13.44

Total Current Liabilities 50.34

Total Equity & Liabilities 284.58

Statement of change in Equity:

Statement of change in Equity For the year ended 31st March

15, 2015

Share Capital

Share Premium

Retained Earnings

Total

US $ Million

US $ Million

US $ Million

US $ Million

Balance at 31st March 15, 2014 10 50 1.7 61.7 Profit - - 42.54 42.54 Dividends paid - - (10) (10)

Balance at 31st March 15, 2015 10 50 34.24 84.24


22

Appendix-6

Statement of Cash-Flow:

Forecast for the Year ended 31st

March 2015

US $

(Million)

US $

(Million)

Cash-flows Form Operating Activities: Profit before taxation (after Finance Cost (net))

55.98

Adjustments: Depreciation & amortization of E&P drilling cost

28

Finance cost (net) 15.5 43.5

(Increase)/ Decrease in Inventories 10 (Increase)/ Decrease in Trade Receivables (2) (Increase)/ Decrease in Deferred Tax Asset - Increase/ (Decrease) in Trade Payables (excluding taxation)

(5) 13

Finance Cost (net) paid (15.5) Tax Paid (0.5) 16

Cash generated from operating activities 96.48 Cash Flow from Investing Activities: Purchase of non-current assets (net) (Including capitalised E&P cost)

(30)

Cash used in Investing activities

(30)

Cash Flow from Financing Activities: Dividends Paid (10)

Cash Flow from Financing Activities (10)

Net Increase in Cash and Cash Equivalent 56.48 Cash and Cash Equivalent at 31st March 2014

13.6

Cash and Cash Equivalent at 31st March 2015

70.08


23

Appendix-7

Working Capital

As on 31st March 2015 (US $ Million)

Working Capital (Current Assets – Current Liabilities)

(93.58 – 50.34) = 43.24

Free Cash Flow (FCF):

As on 31st March 2015

(US $ Million)

FCF (Cash Flow – Change In Net Working Capital)

(70.08 - 43.24) = 26.84

Forecast of Market Capitalisation:

Year No. Of Issued Shares (Million)

Market Price (US $) Market capitalization ( US $ Million)

2014 10 26.80 268

2015 10 35 350

Forecast of Retained Earning:

Year Retained Earning (US$ Million)

2014 41

2015 42.54

2016 45.35

2017 48.21


24

Appendix-8

Calculating Earning Per Share (EPS) Ratio and Pice Earning (PE) Ratio:

Year EPS Ratio PE Ratio

2014 4.10 6.53

2015 4.25 8.23

Glossary:

TQM Total Quality Management

RFID Radio Frequency Identity System

E&P Extraction and Production

HSE Health, Safety and Environmental

NPV Net Present Value

ROE Return on Equity

Cash that can be generated from the field GGG with the forecasted figures by the Geologist

of YJ (Cash-flow, Discounted Cash-flow and Net Present Value):5

I. Cash-flow and Discounted Cash-flow if farmed out to LG

Year Cash-flow (US $

Millions)

Discount factor Discounted Cash-flow

(US $ Millions)

0 (2015) (14) 1 (14)

1 (2016) 6 0.840 5.04

2 (2017) 9 × (11 – 1.1) = 89.1 0.706 62.90

II. Cash-flow and Discounted Cash-flow if not farmed out to LG

Year Cash-flow (US $

Millions)

Discount factor Discounted Cash-flow

(US $ Millions)

0 (2015) (18) 1 (18)

1 (2016) (30) 0.840 (25.03)

2 (2017) - 0.706 -

3 (2018) 9×12.7 = 114.3 0.593 67.77

4 (2019) 9×13.4 = 120.6 0.499 60.17

5 (2020) 9×14.07 = 126.63 0.419 53.05

5 The calculations of cash-flow are adjusted with an average increase of 5%.


25

Appendix-9

III. NPV if the field GGG is Farmed-Out

Year NPV (US $ Million)

2016

2017 (5.4 + 72.35 – 14) = 63.75

IV. NPV if the field GGG is not Farmed-Out

Year NPV (US $ Million)

2015 -18

2016 (-18 – 25.03) = - 43.03

2017 -43.03

2018 (67.77 – 18 – 25.03) = 24.74

2019 (60.17 – 18 – 25.03) = 17.14

2020 (53.05 – 18 – 27.03) = 8.02

Note for the above calculations:

1. The rate for discount factor is taken to be 19%

2. Only one Cash-flow and NPV must be considered from the year 2017-2019 since

it is not sure when production drilling will complete.

Calculation of CAGR:

(Present value/ Beginning Value)(1/ number of years) - 1


26

Appendix-10

Briefing-Sheet to the board of YJ with regard to what next for YJ

To: YJ Board Members

From: King’s Mandu Consulting Firm

Date: 5th August 2014

YJ must consider a sustainable approach if it is to operate for a foreseeable future.

There are many alternative approaches that YJ can consider for what YJ can do next.

Firstly, YJ should keep exploring the prospective oil and gas reserve and approach in

getting the maximum license as possible for test and production drilling.

Seco9ndly, YJ can consider strategic partnership with oil and gas transport companies

whereby YJ will provide its oil and gas to transport companies in order to deliver to

prospective customers to the transport companies with first priority. This will help YJ in

out reaching its customers in low price.

Likewise, YJ can opt to invest in Bio-fuels like ethanol, Bio-diesel, Bio-Butanol,

methanol, Butanol as bio-fuels have increased in popularity because of rising oil prices

and the need for energy security. Also, many automobile businesses like Volkswagen,

Skoda, and BMW are innovating and producing cars and bikes that are operated using

Bio-fuels.

Similarly, YJ should consider investing in alternative energy resources like wind, solar,

hydro power and so on as it expertise will be familiar with these industries.

final report for cima gbc 2015

Documents