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Oil & Gas NAV ModelingCopyright

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• The NAV approach is based on the theory that the value of the E&P company is based onthe cash flows stemming from its exist ing  assets, net of liabilities.

• Existing proved reserves are blown-down (reduced to zero) as they get produced over acertain future period.

• Proved oil and natural gas reserves

• Crude oil and gas price assumptions

• Discount rate

• Future production profile

• Royalties and taxes

• Production costs

• Future development costs

• Future abandonment and dismantlement costs

Net asset value (NAV) in theory

Major considerations/assumptions in NAV modeling

NAV overview

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Reference from SEC PV-10

section (OXY’s 2006 10-K)

Make assumptions for:

• % of total development costs per year 

•  Annual oil production decline

•  Annual natural gas production decline

NAV modeling

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Reference the following from the core model:

• 2006 year-end crude oil reserves

• 2007-2013 oil production• 2007-2013 oil price

Apply crude oil production decline assumptions to forecast oil production beyond the

projection period

Input crude oil price assumptions beyond the projection period

NAV modeling

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Reference the following from the core model:

• 2006 year-end natural gas reserves

• 2007-2013 natural gas production• 2007-2013 natural gas price

Apply natural gas production decline assumptions to forecast natural gas production

beyond the projection period

Input natural gas price assumptions beyond the projection period

NAV modeling

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Calculate oil revenues (oil price x oil production)

Calculate natural gas revenues (natural gas price x natural gas production)

Calculate total revenues

NAV modeling

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• Reference production costs per boe through 2013 from the core model

• Input production cost assumptions beyond the projection period

• Calculate development costs based on development costs per year assumptions inputtedearlier 

NAV modeling

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• Calculate total pre-tax cash flows (revenues – production costs – development costs)

• Reference tax rate through 2013 from the core model and input tax rate assumptions

beyond the projection period• Calculate after-tax cash flows

NAV modeling

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• Calculate present value of all after-tax cash flows

NAV modeling

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• Input assumptions for undeveloped acreage valuation and calculate total value of the E&P

segment

NAV modeling

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• Reference 2007 chemicals segment EBITDA from the core model

• Input EV/EBITDA multiple (derived from comps analysis)

• Calculate the value of the chemicals segment• Calculate Oxy’s implied enterprise value

NAV modeling

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• Reference 2006 year-end debt and cash balances from the core model

• Reference shares outstanding calculated earier in the DCF tab

• Calculate share price

NAV modeling