Professional Documents
Culture Documents
Investment Decisions
Petroleum investments are
capital intensive irreversible high risk/uncertainty
Investment decisions today are only unfolded in the uncertain future for both company and government
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Modeling = Predicting
Petroleum project modelling is based on
knowledge of fundamental elements in technology and economics empiric data and a bit of artistry
Warning
All modeling is imperfect.
It is always a simplification of reality Depends on quality of input
Resource Rent
Allocation of revenues from Production
Bonuses Royalties Prod. Sharing Taxes Gov. Participation
Contract award
PDO
Government
Time
Costs
Pre-license Exploration Development Production Production Rehab. Abandonment
Lead Time
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Net revenue
Production curve
Time
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Cutoff
Oil Production
Oil Production
300.0 250.0
Oil [Thousand bbl/d] Assoc. Gas [Thousand o.e./d]
150.0
100.0
50.0
0.0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Year
Gas Production
Gas Production
3000.0
Non Assoc. Gas [Million scf/d] Condensate [Thousand bbl/d
2500.0
2000.0
1500.0
1000.0
500.0
0.0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Year
100 %
40
35
30
25
20
15
10
90.0 %
80.0 %
70.0 %
50.0 %
40.0 % 35.1 %
30.0 % 2
20.0 %
10.0 %
0.0 % 1986 1987 1988 1989 1990 1991 1992 1993 1994 Years 1995 1996 1997 1998 1999 2000 2001 2002
00.0 %
90.0 %
80.0 % 25 70.5 % 20
70.0 %
60.0 %
50.0 % 15 39.2 % 10
40.0 %
30.0 %
20.0 % 5
10.0 %
0.0 % 1986 1987 1988 1989 1990 1991 1992 1993 Years 1994 1995 1996 1997 1998 1999 2000 2001
Million Sm3
1.2
0.8
63.9 % 6
0.6
0.4 29.8 %
0.2
0 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Rules of thumb - 1
TECHNICAL ASPECTS Peak production/total reserves Decline rate Rule of Thumb 10-12% 10-12%
Lead Time
Years from discovery to production
Sleipner Vest 22 20 Lille Frigg Statfjord Nord Statfjord st 18 Hod Troll II 16 st Frigg Gugne 14 Snorre Brage Heimdal Troll I Sleipner st 12 Tommeliten Loke Heidrun Gamma Gyda Ula 10 Cod Yme Eldfisk Oseberg Draugen Veslefrikk Fry Gullfaks Albuskjell 8 VestEkofisk Tor Oseberg Vest Tordis Murchison Edda Frigg 6 Embla Valhall Statfjord Gyda Sr 4 Gullfaks Vest Ekofisk 2 0 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990
Year of discovery
Exercise - Production
Construct a production curve for an oil field with 300 million barrels recoverable reserves which will be produced over 20 years. Lead time is 5 years and cut off rate is 10,000 bopd (Use Excel)
Net revenue
Net revenue
Expenditures = Cost
Capital expenditure
Wells Constructions - Facilities Pipelines
Operating expenditures
The cost of running the operations
Fixed Opex Variable Opex
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350.0 TOTAL CAPEX [Million USD, inflated] Varible Opex TOTAL OPEX [Million USD, inflated]
300.0
250.0
200.0
150.0
50.0
0.0
Years
Appraisal
Development/operation
Averages Appraisal Averages, Capex First Field life no. of Duration , Capex Opex Opex wells Well cost (years) (USD/bbl) (USD/Sm3) oilYears (years) (USD/bbl) (USD/Sm3) 1 6.7 1.8 5.16 32.46 3.8 6.4 6.72 42.3 1.43 7.29 1.83 4.34 27.27 4.17 6.86 5.30 33.34 2.14 7.29 2.17 3.68 23.13 5.17 9.00 4.93 30.99 2.29 7.29 2.83 2.93 18.43 6.33 13.00 4.41 27.76 3.14 7.29 3.67 2.51 15.79 7.67 16.86 3.89 24.47 3.86 7.29 4.17 2.09 13.17 8.33 19.57 3.47 21.84 2.31 7.19 2.74 3.45 21.71 5.91 11.95 4.79 30.12
Opex (usd/bbl)
(Norwegian fields 1998)
30.0 25.0
20.0
USD/BBL
15.0
Series1
10.0
Average 4.4
5.0
0.0 0 10 20 30 40 Fields 50 60 70 80
6.00 %
5.00 %
Model checks
Several checks of the results should be performed
Royalty % per year Profit share % per year Production plot Capex and Opex plot Depreciation plot
Rules of thumb -2
BASIC ASSUMPTIONS Rule of Thumb Capex/bbl 3-5 usd Capex as % of Gross Revenue 10-20% Opex/bbl 3-5 usd Opex/peak year as % of total Capex 4-8%
Net revenue
Limited usage
Elements in a PSC
Work Commitment Bonus Payment Royalties Cost Recovery (Cost Oil) Profit Oil Government participation Domestic Market Obligation Ring fencing
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Contractor
Gross Revenues
100
Government
14.2
Net Revenues
80
28.0
Cost Oil
35 %
Profit oil
52
15.0
37.0
Effects The split does not change with the level of cost Effective Gov. take is 85%
Taxable
20.8
-10.0
Tax
48 %
10.0
38.8 10.8 15 %
61.2 61.2 85 %
FTP
Calculated from Gross Revenue Works as a modified Royalty Can cause premature abandonment
F1
n=0
Fn F2
(1 + i)n
(1 +
i)1
+ (1 + i)2 + ... +
Fn
(1 + i)n
...where: Fn - the net income in year n i - discount rate n - total numbers of years (project duration)
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Cash flow
3000
Cummulative cashflow
2500
1500
1000
Discounted Values
500
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
-500
Present Value
Year 2003 2004 2005 2006 2007 2008 SUM Cash Flow NPV 5% NPV 10% NPV 15% NPV 20% -200 -200.0 -200.0 -200.0 -200.0 -50 -47.6 -45.5 -43.5 -41.7 10 9.1 8.3 7.6 6.9 100 86.4 75.1 65.8 57.9 100 82.3 68.3 57.2 48.2 200 156.7 124.2 99.4 80.4 160 86.8 30.4 -13.6 -48.3
IRR
50 0 NPV
5%
10 %
15 %
20 % -50 -100
Discount Factor
EMV - Example
Assumptions
NPV = 120 million USD RC = 15 million USD SP = 22% EMV = (R*SP) - (RC*(1-SP)) EMV = (120*0.22) - (15*(1-0.22)) EMV = 14.7million USD
Break even SP = 12.5% (EMV=0)
EMV curve
140
Reward (NPV)
EMV curve
120
100
80
Million USD
60
40
Calculated EMV
20
0 0 -20 10 20 30 40 50 60 70 80 90 100
Risk capital
Synonyms
Net present value (NPV) Present value Discounted cash flow Present value profit (PVP) Present worth (PW) Rate of return (ROR) Profit investment ratio (P/I ratio) Return on investments (ROI) Expected value Risked value
Basic assumptions
Start Year Oil Price
Starting value Escalation Model
GeoX Demonstration
The structure and functionality of GeoX
Prospect Analysis Discovery Analysis Full Cycle Analysis