Oil & Gas Investments: Valuation Analysis of Aker BP ASA - Valhall IP Upgrade

Abstract

This master thesis conducts a valuation of Aker BP’s upgrade of the Valhall water injection platform (IP). The upgrade involves replacing outdated drill floor equipment with state-of-the art robot technology. Studies performed by the contractor in cooperation with Aker BP indicated major costs savings and increased drilling performance with the new system. For this purpose, the primary valuation method, a DCF model, concludes that investing in the Valhall IP upgrade has a significant upside compared with current conventional drilling methods.

The thesis begins with the valuation framework by reviewing relevant theoretical approaches. It then addresses the oil and gas industry and the history and current state of Aker BP, Canrig Robotic Technologies, and Valhall IP. Following that, it engages in a strategic SWOT- analysis to provide an overview of the project, and moves on to a valuation analysis, which constitutes the main portion of this thesis. The valuation analysis consists of calculating the cost of equity, DCF, and the projects initial payback period.

Given the results from the valuation analysis and the DCF model, the recommendation is to invest in the Valhall IP upgrade, since the net present value is positive and increases the wealth of Aker BP and its investors.