Net present value (NPV)

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www.advisian.com
Hot to use Net
Present Value (NPV)
to gain project
approval
Alan William Stokes

Lost in Translation

The OneWay™ Framework
committing to personal
leadership….
...achieving our
vision.
through our
people….
Expectations
Our b...

 A new fuel tanker arrives on location at a site in the middle east
 The HSE manager tells the fleet supervisor to ensur...

 Despite the hilarity, what are the implications of a breakdown in
communication?
 Personnel safety
 Process safety inc...

 Communication is the transfer of information from one person to
another
 Effective Communication is when the receiver u...

Introduction
Net Present Value is used to
• 1 Establish profitability
• 2 Rank all the projects at budget time
Topics for ...

 Project:
 Problem: power generation at 70 Mtpa Iron Ore development in Mauritania
 Studied 9 options for power generat...

Refresher on Net Present Value
Net Present Value (NPV) is the difference between the present value of
all cash inflows and...

Basic NPV rule
A positive net present value indicates that the projected earnings
generated by a project or investment (in...

NPV past and future
NPV work used to be the realm of a specialist in the Operator
Not for Project Engineers.
The Grown ups...

CAPEX
OPEX
Revenue
Decommission
Tax rebate
Carbon / GHG
Community
Waste
Biodiversity
Others
Project Analysis

Britoil Clyde Oilfield
Design
• 80,000 b.o.p.d.
• 80m water depth
Project economics of 1983 and oil
at $50 per barrel!!!
A...

CLYDE PROJECT ECONOMICS
Slide 14
Paper No. OTC-25247 • Decommissioning Costs Can Be Reduced • Alan William Stokes

Base Case
Advisian / 15
Operating Costs Capital Costs
Decommissioning Costs
Gas and Oil Price
Tax Rebate Discount Rate

Example
Case 1 Decommissioning costs.
Reduce decommissioning costs by changes
to valves for flushing of pipelines, amend
w...

Decom down by 25%
Advisian / 17

Example of NPV use
Case 2 Eliminate a control room operator
Needs capital investment on new instrumentation,
communication...

Opex down 8% Capex up 5%
Advisian / 19

Vision
Advisian / 20
Have the NPV model on your desk to use
Not during Identify stage as inadequate
detail available
Not d...

Vision for the future
Integrating decision-making
25/01/20
18
CapEx OpEx NPV / NPC~
Schedule
risk
Shadow
costs*
Social and...

Thank you for your time
Happy New Year
Alan Stokes
Advisian / 22

Inflation
The NPV formula changes to allow for a predicted inflation
The bottom line becomes
( 1 +r )t ( 1 + i )t
Where r ...

HOW TO GET SAVINGS
Slide 24
Paper No. OTC-25247 • Decommissioning Costs Can Be Reduced • Alan William Stokes

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