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Syngas Pricing Analysis for Joint Venture Decision

Explore the detailed history of syngas pricing negotiations between Team Golf and Team Hotel, leading to the final decision not to proceed with a joint venture. Analyze the financial implications and compare IRRs from various meetings. Understand typical joint venture processes and industry practices. Team Golf and Team Hotel have opted for independent paths.

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Syngas Pricing Analysis for Joint Venture Decision

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Presentation Transcript

  1. The Final Business Proposal With Team Golf and Team Hotel

  2. History of syngas price MEET 2 Team Golf MEET 2 Team Hotel • Team Golf initial guess for syngas price was $50/ton (February 2011) • Team Hotel has not begun economics

  3. History of syngas price MEET 3 Team Golf MEET 3 Team Hotel • Team Golf moved the price of syngas to $150/ton (February 2011) for an IRR of 40.5% • Capital cost was $418 million • Team Hotel had syngas price set at $200/ton (February 2011) for an IRR of 3.58% • Capital cost was $320 million

  4. History of syngas price MEET 4- Team Golf MEET 4- Team Hotel • Team Golf used expanded timeline for start-up with a syngas price of $300/ton • Capital cost was $418 million • Syngas price raised to $300/ton (April 2011) to give an IRR of 29.17% • Capital cost was $238 million MEET 4- Joint Econ The joint economic venture IRR was 34.2%

  5. History of syngas price MEET 5- Team Golf MEET 5- Team Hotel • The price was iterated to $457.80 to give both teams an IRR of 29.8% • Capital cost was $418 million • Syngas priced raised to $457.80/ton (April 2011) to match IRRs at 29.72% • Capital cost now $320 million MEET 5- Joint Econ The joint economic venture IRR was 24.2%

  6. Comparison of IRR’s

  7. How are joint ventures usually formed? • Agreements are drawn up in contracts to stabilize prices among the two companies

  8. In industry… • The discussion that took place between Team Golf and Team Hotel is unrealistic. • The price of syngas would have never been matched to meet a desired IRR. • A company would have given a price and only budged slightly from that; the amount they could afford to pay would have never been stated. • There are no stand alone gasifier plants. • Team Hotel would likely use LNG that is water reformed to provide feedstock

  9. The Final Decision • Team Golf and Team Hotel will not be moving forward with a joint venture • The final price of syngas is: $457.80/ton • This price gives both teams an IRR of 29.8% • A joint venture gives an IRR of 24.1%

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