Presentation 4

1,029 views

Published on

0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
1,029
On SlideShare
0
From Embeds
0
Number of Embeds
9
Actions
Shares
0
Downloads
77
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

Presentation 4

  1. 1. Petroleum Project Economics Econ210D Presentation 4 Petroleum Project Appraisal and Screening Week 4
  2. 2. Payback <ul><ul><li>This measures the length of time required for the net cash flows generated during production to cover the cash outflows during exploration and development. </li></ul></ul><ul><ul><li>This occurs where the cumulative cash flow is zero. </li></ul></ul><ul><ul><li>The option with the shortest payback is most preferred. </li></ul></ul>Petroleum Project Appraisal and Screening Week 4
  3. 3. Discounted Cash Flow <ul><li>Discounted cash flows refers to the conversion of estimated future cash flows to present values using an interest rate known as “Discount rate” </li></ul>Petroleum Project Appraisal and Screening Week 4
  4. 4. Net Present Value <ul><li>Uses the present value factors from: </li></ul><ul><li>1/(1+r) n </li></ul><ul><li>The sum of all discounted cash flows at a given interest rate </li></ul><ul><li>The investment with the highest present worth is selected </li></ul>Petroleum Project Appraisal and Screening Week 4
  5. 5. Net Present Value Petroleum Project Appraisal and Screening Week 4 <ul><li>Where: </li></ul><ul><li>CF t = Cash Flow of a period “t” </li></ul><ul><li>d t = Discount rate for period “t” </li></ul><ul><li>n = Last period of economic horizon </li></ul><ul><li>Investment Decision: </li></ul><ul><ul><li>NPV > 0 Project accepted </li></ul></ul><ul><ul><li>NPV < 0 Project rejected </li></ul></ul>Formula:
  6. 6. Internal Rate of Return <ul><li>Discount rate which gives a net present value of zero. </li></ul><ul><li>Manually calculate via a trial and error approach. </li></ul><ul><li>Software to calculate such as Microsoft excel. </li></ul>Petroleum Project Appraisal and Screening Week 4
  7. 7. Internal Rate of Return <ul><li>Manual calculation steps </li></ul><ul><li>Use an interest rate which gives a slightly positive present worth </li></ul><ul><li>Use an interest rate which gives a slightly negative present worth </li></ul><ul><li>Apply rate of return formula </li></ul>Petroleum Project Appraisal and Screening Week 4
  8. 8. Discount rate and Net Present Value Discount Rate Net Present Value IR +ve IR -ve PW -ve PW +ve Internal Rate of Return 0 Petroleum Project Appraisal and Screening Week 4
  9. 9. Internal Rate of Return IR +ve = Interest rate with positive present worth IR -ve = Interest rate with negative present worth PW +ve = Positive present worth PW -ve = Negative present worth Petroleum Project Appraisal and Screening Week 4
  10. 10. Home Work <ul><li>Using the information in the following slide, calculate total cash inflow and total cash outflow. </li></ul><ul><li>Using the cash flows determine: Payback, NPV and IRR. </li></ul>
  11. 11. Year Oil Production MMbbls Oil Price ($/BBL) Total Capex $m Total Opex $m 1986 0 15.0 -30 0 1987 0 19.2 -22 0 1988 0 16.0 -112 0 1989 0 19.6 -110 0 1990 0 24.5 -77 0 1991 2 21.5 -10 -1.4 1992 4 20.6 -7 -2.8 1993 8 18.5 -4 -8.4 1994 15 17.2 0 -19.6 1995 14 18.4 0 -15.7 1996 14 22.2 0 -13.3 1997 12 20.6 0 -11.3 1998 9 14.4 0 -9.6 1999 8 19.3 0 -8.2 2000 7 30.3 0 -7 2001 6 25.9 0 -5.8 2002 5 26.1 0 -4.8 2003 4 31.1 0 -2.7 2004 2 41.4 0 -1.3 2005 0 56.5 0 0

×