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Easy Investment Analysis Cost-Benefit Analysis Profitability

Bern Energy

#Energy #Oil & Gas
ProHub Comment

This case tests the candidate's ability to structure a financial analysis comparing two investment options with different capital requirements, operating costs, and revenues. Beyond quantitative profitability analysis, it introduces a corporate social responsibility dimension, requiring candidates to balance financial optimization with ethical considerations and stakeholder management.

Estimated Time 15 minutes
Difficulty Easy
Source HKUST
50 / 100

Your client, Bern Energy, is based in Southeast Asia and is one of the world’s largest producers and suppliers of natural gas to major markets in Asia Pacific. It has recently discovered two untapped natural gas reserves in Bintuni Bay, Indonesia, isolated from the rest of the Tangguh gas fields. The client can only secure rights to extract from one of these reserves.

One of these reserves can be reached via an on-shore rig, while the other can only be reached via an off-shore rig. Bern Energy needs a recommendation on which one will serve them better. Which one should they go with?

Clarifying Information

  1. Natural gas is a flammable gas, consisting largely of methane and other hydrocarbons, occurring naturally underground and used as fuel. Once extracted, it requires storage in appropriate facilities before it is purchased, transported, and used as fuel.
  2. Regulatory hurdles permit the client to extract from only one of the identified reserves all the way to depletion.
  3. Bern Energy prides itself in its ability to setup and decommission rigs in negligible timeframes; it can also recycle and resell key rig components to make decommissioning occur at a net negligible cost.
  4. As policy to minimize revenue variability and aid in decision making, Bern Energy sells its natural gas as forward contracts to lock in prices.
  5. The discount rate (if asked by the candidate) can be taken as 0% for the purpose of this case.
  6. The on-shore rig site is also positioned close to a remote centuries-old Bintuni tribe that is highly opposed to having the on-shore rig built close to their sacred land. However, Bern Energy has rights to the land right next to the tribe and carries no legal or financial responsibility for the well-being of the tribe. Bern Energy may choose to allocate funds to help relocate the tribe further north, away from the proposed site of the rig to maintain the tribe’s longevity. The necessary funds required is expected to be USD $3,500,000.