HTE’s sustainable growth strategy in its upstream business is dependent on its access to over 2B BOE of reserve. The recovery is less than 30% and the contention is that 20M will be added to its Proven and Probable (P&P) reserves for every one-percentage increase in recovery using technological advancements. Since that amounts to 10% of the existing P&P reserves the potential is huge. The execution of this strategy requires high oil prices, as its OOIP reserves are either mature properties or oil sands, both of which are capital intensive. The downstream business, is by nature highly cyclical as indicated by the crack spread.
Below is a table that shows the current valuation of their upstream assets using a variety of criteria:
|Multiple of Proven & Probable (P&P) Reserves||18.9|
|Multiple of per flowing barrel oil equivalent*||$65545|
|Multiple of Original Oil In Place (OOIP)||1.8**|
- Assumes downstream asset valuation to be $1.6B, the purchase price at the time of the acquisition.
- *Projected for 2008
- **Less than 1 when 1B barrels of oil sands OOIP is included