Modeling downstream oil company
Few questions about modeling a downstream oil & gas company.
1. what are the key elements (ratios etc) i should be looking into when modeling within this space?
2. does anyone have a template or reference material i can take a look at that is specific to this sector?
Thanks a lot!
Anyone?
Anyone?
refining is most challenging business to model from the public side without a supporting corporate model (as in you can't even do it). a full model would have individual crude sources (i.e. crude from different countries / basins / types of crude from those geographies) for each refinery based on the optimal input slate for that individual facility with assumptions around fixed / variable cost, capacity utilization, assumed downtime / capex for maintenance, product yield per barrel of crude input (gasoline, diesel, jet fuel, asphalt, ect), and an assumed spread for those individual refined products that is adjusted for seasonality (i.e. seasonal gasoline crack spreads are typically highest in the summer months). all of this is driven by crude differentials and demand within the market that individual refinery serves, all of which can undergo changes that could turn a specific refinery from a huge profit center to one that is bleeding money in a period of months. research models typically have assumed EBITDA/barrel spread by region that drives their models. this is not a great method but again you can't build an accurate refinery model without all of the previously mentioned assumptions.
refining is tough to model but its not impossible. Do you have a specific company you're trying to model? If not, pick one that posts benchmark indicator margins on their website (MPC or VLO). Revenues for refining are irrelevant, it's all about margin. A typical refining model will look something like this:
Refining capacity (either broken out regionally, i.e. Mid-Con, Gulf Coast, etc. or just consolidated) x utilization = total throughput
Throughput x realized margin per barrel = gross margin (this is the hardest part to nail down. look back historically at posted realized margins compared to the benchmark indicators to get a capture rate. Going forward use some kind of benchmark assumption, i.e. Gulf Coast 3-2-1 using LLS of $8 - $10/Bbl, then apply the capture rate to that. margins are seasonal, typically highest in 2Q and 3Q and lowest in 1Q and 4Q. I would assume for your purposes this should be enough).
Subtract out operating costs (cash opex and D&A look at historical per barrel metrics and use those going forward.)
Now you're at operating income. Subtract out corporate level G&A, interest expense and income taxes and you're at net income.
If you need to get more granular than this let me know and I can try to help, but hopefully for your purposes this should be enough to get you there. good luck.
rjroberts1 gave a good oversight.
Basically it's inputs are
-Volume (throughput) -Margin spread (selling price of refined products - purchase price of crude) -Less direct operating expenses (EBITDA) -Less Taxes, Interest.
A good way to approach it is get the historical crack spread. That in it self will give you the most basic industry profitability.
Then look at historical operating costs on a per barrel basis. Try to see if you can get a sense of how much of those costs are fixed, which is going back to see if there has been any major outages, and how did that affect per barrel costs.
Also utilization rate which relates to just above.
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