Gas Investment Appraise (Term Paper Sample)

Gas Investment Appraise
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BG Gas
In an energy-oriented world, demand for fossil fuel is on a steady rise. The danger associated with the looming oil crisis creates the need for investment in natural gas. Current deposits of oil are dwindling, and alternatives are under scrutiny. Initial cash outlay for natural gas prospecting is high. The investments eventually pay off because the lucrative market for natural gas is booming as an alternative fuel (IAEE, 2012). Postulated figures indicate that growth in this sector of the energy market is set to hit unprecedented levels when the feasibility of oil cannot be vouched (IEA, 2012).
Prospecting for energy in deep-seated seams of the earth is a costly affair; in terms of cash outlay and environmental impact. In view of this, financial appraisal is necessary to establish the viability of a project. Suitable appraisal tools applied to estimation and ascertainment of the required financial resources offer necessary effort. In order to justify the sinking of funds to a risky venture, precision is required to ensure that confidence levels guarantee the investment a healthy return. (Kalter, 1973) The difficulty involved in prospecting for energy reserves and inaccuracy of equipment involved can lead to devastating losses. This happens in sunk costs if a company fails to acquire the energy reserves it aims to drill.
Feasibility studies consider the impact of several aspects on the project. The internal environment is governed by the nature of the firm (Gallaher et al, 2012), funds at the company’s disposal, the effectiveness of their technology, and the suitability of areas under exploration. Aspects external to the company that affect the investment include legislation, political factors and the influence of the international energy prices. These external aspects constitute factors that the company cannot control.
Considering the extensive reach of the BG Company’s market share and distributorship, it stands to reap maximum benefit from economies of scale. The presence of a formidable network of drilling, refinement, and distribution of energy presents a platform for acquiring an edge above competitors (Nutt, 2012). BG has the necessary resources to take on the investments. Investments in the various subsectors of the energy business such as refining decrease the financial risk that the firm faces. The company should forg...