Asset Disposal Case Study

White Paper

Asset Disposal for Oil & Gas Industry

Nov 2015

Table of Contents

Abstract 1

1. Asset Disposal 1

1.1 Indicators for Asset disposal 1

1.2 Review of disposal/continuation 2

2. Effect of current market condition on Asset disposal 3

3. Conclusion 4

4. Value to IGATE business/vertical 4

5. References 5

6. About the Authors 5

Abstract

Effective asset management is the core for sustainable business success for oil & gas industry whether its plants, equipment, property, wells or other.

Asset management can improve financial performance by focusing on increasing the ability to operate the physical assets and identify and improve the operating limits of them. Sometime assets are bottlenecks due to their operating limits

It is a big decision for the industry whether to continue with the asset or put it for disposal as lot of financial responsibilities lie with those assets.

This document gives a high level understanding of deciding factors for the disposal of assets. 1. Asset Disposal

Asset disposal or continuation is subject to Asset financial liability, usage and other factors. 1st step is to determine whether there are any indicators present for asset or asset group to be reviewed for disposal. Asset disposal could be by selling the asset, abandonment, exchange for a productive asset or other methods defined by company.

1.1 Indicators for Asset disposal

Some of the circumstances are listed below which could be the possible indicators for asset disposal review:

a. Significant decrease in the market price of an asset or group of assets.

b. Significant change in its physical condition.

c. Mechanical deficiencies as per operating limits set by industry.

d. Legal factors, compliance, which could affect the value of an asset.

e. Over run of the cost initially expected for the acquisition or construction of an asset.

f. Expected higher returns by disposing before end of

If this criteria meets then asset could potentially be disposed of considering company policies and other factors.

2. Effect of current market condition on Asset disposal

Earlier in the document, we reviewed asset disposal due to its mechanical operating limits and life of asset. But current market conditions (low crude oil price) are also majorly affecting Asset acquisition & disposal.

Upstream and downstream have different affects for Assets acquisitions and disposals due to low crude oil price. As the crude oil prices are low, downstream margins have widened and they are considering acquiring refining assets to expand their capabilities. Rather than building new capacity from scratch, they are looking for in organic growth and expand by acquisitions.

While on the other hand upstream companies are more likely to sell their assets as their margins have gone low. They are mainly looking for disposing of their non-core assets to shed some of their financial liabilities. Also rather that expanding their businesses, they are doing more focused operations which eventually would trigger disposing of assets used in less focused areas.

3.