Presentation 2

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Presentation 2

  1. 1. Petroleum Project Economics Econ210D Presentation 2
  2. 2. <ul><li>Geological structure maps </li></ul><ul><li>Well logs </li></ul><ul><li>Core data </li></ul><ul><li>Reservoir fluid sample data </li></ul><ul><li>Reserve estimates </li></ul><ul><li>Production forecasts </li></ul>Petroleum Engineering Analysis
  3. 3. Life Cycle of a Hydrocarbon Field <ul><li>Exploration </li></ul><ul><li>Appraisal </li></ul><ul><li>Development </li></ul><ul><li>Production </li></ul><ul><li>Abandonment </li></ul>
  4. 4. Decline Curve Analysis <ul><li>Tool in forecasting production over life of field. </li></ul><ul><li>Decline curves are characterized by three main factors: </li></ul><ul><li>Initial production rate </li></ul><ul><li>The curvature of the decline </li></ul><ul><li>The rate of the decline </li></ul>
  5. 5.
  6. 6. Factors affecting Decline Curve: <ul><li>Formation parameters: </li></ul><ul><li>Porosity, permeability, thickness, fluid, saturation, viscosities, relative permeability, reservoir size, well spacing, compressibility, producing mechanisms & fracturing. </li></ul><ul><li>Well bore parameters: </li></ul><ul><li>Hole diameter, formation damage, lifting mechanism, solution gas, free gas, fluid level, completion interval & mechanical conditions. </li></ul>
  7. 7. Cash Inflows <ul><li>Revenue from selling output (oil and gas) </li></ul><ul><li>Proceeds from sale of assets </li></ul><ul><li>Disposal or salvage value at the end of the investment </li></ul>
  8. 8. Revenue <ul><li>Production </li></ul><ul><li>Price </li></ul>PRODUCTION PRICE REVENUE × =
  9. 9. Cash Outflows <ul><li>Operating expenditure – costs which arise on routine basis and are incurred to carry out day to day operations </li></ul><ul><li>Capital expenditure – cost of setting up facilities to enable operations to take place. These cost are not incurred on a day to day basis. </li></ul>
  10. 10. Expenditure <ul><li>Operating Expenditure </li></ul><ul><li>Capital Expenditure </li></ul>Operating Expenditure Capital Expenditure Total Expenditure + =
  11. 11. Operating Expenditure <ul><li>Operating Expenditure – the cost of running everyday operations: </li></ul><ul><li>Production costs </li></ul><ul><li>Transportation costs </li></ul><ul><li>General and administrative costs </li></ul><ul><li>Maintenance </li></ul><ul><li>Insurance </li></ul>
  12. 12. Production Costs <ul><li>Costs incurred to operate, support and maintain wells and related equipment and facilities. </li></ul><ul><li>This includes the cost of workovers </li></ul>
  13. 13. General and Administrative Costs <ul><li>These costs include: </li></ul><ul><li>Salaries </li></ul><ul><li>Training </li></ul><ul><li>Office stationary, </li></ul><ul><li>Information technology </li></ul><ul><li>Office rental </li></ul>
  14. 14. Capital Expenditure <ul><li>Capital Expenditure includes all costs and expenditure, which are incurred in carrying out: </li></ul><ul><li>Exploration </li></ul><ul><li>Appraisal </li></ul><ul><li>Development </li></ul><ul><li>Abandonment activities. </li></ul>
  15. 15. Exploration Expenditures <ul><li>Exploration costs are incurred to: </li></ul><ul><li>Identify areas that may warrant examination </li></ul><ul><li>Examine specific areas that are considered to have prospects of containing oil and gas reserves, including drilling exploratory wells </li></ul>
  16. 16. Appraisal Expediture <ul><ul><li>Appraisal costs are incurred to : </li></ul></ul><ul><ul><li>Carry out stratigraphic tests. </li></ul></ul><ul><ul><li>Drill appraisal wells carried out to determine the physical extent, reserves and likely production rate of a field. </li></ul></ul>
  17. 17. Development Activities <ul><li>Development costs are incurred to : </li></ul><ul><li>Drill and equip development wells </li></ul><ul><li>Acquire, construct and install production facilities </li></ul>
  18. 18. Abandonment Expenditure <ul><li>Also called decommissioning costs are incurred to: </li></ul><ul><li>Plug and abandon wells </li></ul><ul><li>Dismantle wellhead, production and transport facilities </li></ul><ul><li>Remediate and restore producing areas </li></ul>
  19. 19. <ul><li>1. Geological & Geophysical Costs : </li></ul><ul><li>Seismic acquisition, processing and interpretation. </li></ul><ul><li>2. Drilling Costs for all wells ( producers, injectors, subsea templates) </li></ul><ul><li>Rig costs </li></ul><ul><li>Casing and tubing </li></ul><ul><li>Drilling fluids </li></ul><ul><li>Logging & coring </li></ul><ul><li>Completion treatment </li></ul><ul><li>Pumping equipment </li></ul><ul><li>Wellhead assembly </li></ul>Capital Expenditure
  20. 20. <ul><li>3. Development costs: </li></ul><ul><li>Flow lines </li></ul><ul><li>Separators </li></ul><ul><li>Treaters </li></ul><ul><li>Production storage tanks </li></ul><ul><li>Pipelines </li></ul><ul><li>Offshore platforms </li></ul><ul><li>Natural gas cycling and processing plant </li></ul><ul><li>Compressors </li></ul><ul><li>Power generation units, </li></ul><ul><li>Waste disposal system </li></ul>Capital Expenditure
  21. 21. <ul><li>4. Abandonment costs - occur at the end of the project. </li></ul><ul><li>Comprises of plug costs </li></ul><ul><li>site restoration costs which </li></ul>Capital Expenditure
  22. 22. Tangible Capital Expenditures <ul><li>This refers to amounts spent on various kinds of equipment or physical structures such as: </li></ul><ul><li>Pipelines, </li></ul><ul><li>Platforms, </li></ul><ul><li>All other Structures and equipment </li></ul>
  23. 23. Intangible Capital Expenditures <ul><li>These are intangibles expenses which offer no resale (salvage) value and includes: </li></ul><ul><li>Seismic costs </li></ul><ul><li>Labour expenses before productions begins </li></ul><ul><li>Drilling rig cost and d rilling Chemicals </li></ul><ul><li>Drilling Mud </li></ul><ul><li>Grease etc </li></ul>
  24. 24.
  25. 25.
  26. 26. The Entire Life Cycle
  27. 27. Net Cashflow <ul><li>The net value of Cash Inflows and Cash Outflows. </li></ul><ul><li>Cash Inflows minus Cash Outflows. </li></ul>
  28. 28. Key Petroleum Project Parameters Parameter Fields Estimate Recoverable Reserves 160 mbo Field Life 20 years Oil Price   $82 per bbl Total CAPEX   $300 millon OPEX per bbl $7 per bbl 
  29. 29. Inflation <ul><li>Inflation can be defined as a sustained increase in prices. </li></ul><ul><li>The rate of inflation is stated as a percentage. </li></ul><ul><li>This represents the rate of changes of prices between the current and previous year. </li></ul>
  30. 30. Inflation <ul><li>If the inflation rate is 12 percent then this means that if the price of an item was $100 last year then the price in the current year would be $112. </li></ul>
  31. 31. Inflation <ul><li>Since life of field of an oil or gas operation usually spans a number of years, price increases are encountered. </li></ul><ul><li>Therefore in the forecasting of costs, inflation needs to be factored into the estimates. </li></ul>
  32. 32. Inflation <ul><li>If production expenses are currently $2.50 per barrel, then applying an estimated inflation rate of 7 percent over the next 5 years would give the following estimates. </li></ul>Year Production Costs per barrel in US$ 2010 $2.50 2011   2012   2013   2014   2015  
  33. 33. Home Work <ul><li>Obtain estimates of all costs relating to the life cycle of an oil or gas field. </li></ul><ul><li>See slides 11 to 21 for a breakdown of the items. </li></ul>

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