2015ARKH-P5-Field Development Evaluation(80s)
.pdfPetroleum Field Evaluation Process
Introduction to Economic Analysis
Cash Flow Analysis (1)
1 – Out flows:
Exploration/Appraisal costs
Development costs
Tariffs
Operating cost
Taxes
2 – In flows:
Oil and Gas revenue
Production is the part of the reserves produced daily. The barrel (bbl) is commonly used to quantify the oil quantities. Cubic meter or Standard cubic feet are used for gas project.
3 – Project economics:
Depend of the petroleum contract
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Petroleum Field Evaluation Process
Introduction to Economic Analysis
Cash Flow Analysis (2)
4 – Investment cost - CAPEX:
The costs incurred during the development of the project: seismic acquisition and treatment, studies, exploration and development wells, hardware and facilities for producing the field ….. And installations removal
Costs are highly sensitive to the field environment: in the range of 1 $/bbl in the middle east, 7 $/bbl in the north sea.
5 – Operating cost - OPEX:
Cost associated with the ongoing operation of the installation: logistic, personnel, products, tariffs …
Cost are fixed or variable.
Operating costs range can be as low as 2 US$/bbl up to 4 or 5 US$ for a small field. Costs were dramatically reduced over the last 10 years but have recently drastically increased due to overheated industry
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Petroleum Field Evaluation Process Introduction to Economic Analysis
Main Economic Indicators
NPV – Net Present Value
IRR – Internal Rate of Return
MCE – Maximum Capital Exposure
PAYBACK – Also known as PAYOUT
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CASHFLOWS
Cashflow = Cash inflow – Cash outflow
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Yearly cashflows |
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(Cashflows annuels) 0
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-100
-150
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years |
- |
Cumulated cashflows (Cashflows cumulés)
Project value
+ |
years |
- |
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TIME VALUE OF MONEY : DISCOUNTING
Discounting :
Measures the depreciation of « future » compare to « present » Preference to have money « NOW » rather than in « FUTURE »
It is the process of finding the present value of an amount of cash at some future date :
Present value : V0
Amount of cash in year « n » : Vn
V |
0 = |
V |
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/ (1 + a%)n |
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« a » is the discount rate, it represents the time value of money, it is equivalent to a yearly interest rate
The discount rate :
Represents the cost of the capital money
Is choosen by the investor/company
Depends on the country where the Project takes place (Risk consideration)
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DISCOUNTING
X %
+
C %
Components of discounting
Risk bonus
•Remuneration of the risk
•Depends on the project (and its environment)
Cost of time
•Remuneration of privation of immediate availability
•Does not depend on the project
The Discount rate "a" is arbitrarily chosen by the investor
EM - MDI / ONGC - Economics & management of E&P |
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PRESENT VALUE
Vn
V0 = (1 + a)n
V0 |
: present value |
Vn |
: value year « n » |
a |
: discount rate |
Example : Vn = 1million $, n = 10 years and a = 10 %
V0 = 0,385 million $
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NET PRESENT VALUE ( NPV )
It is the cumulated yearly discounted cashflows
K=n |
Fk |
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NPV (a) = Σ |
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NPV : Net Present Value |
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K=1 (1 + a)k |
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a |
: Discount rate |
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n : Total nb of years |
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Fk |
: Cashflow for year k |
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Single independant project : accept project if NPV > 0
Choice between several projects : choose project with highest NPV
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VALUE CREATION
NPV
IRR
Project NPV
Discount rate
Company discount rate
Value is created if :
•Project NPV(a) > 0
•Project IRR > Company discount rate
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PAY-OUT TIME – MAXIMUM CAPITAL EXPOSURE
Cumulated cashflows |
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Pay-out time |
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years |
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Maximum Capital Exposure |
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Pay-out : |
Maximum Capital Exposure : |
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•Period of time at the end of which the |
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•It is the maximum negative value of the |
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cumulative net revenues equal the total |
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cumulated cashflows |
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expenditures |
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•Generally, it occurs during the First Oil |
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•Essentially, it is the time required to get the |
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year |
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investment back |
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•It does not take into account the time value of |
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the money. One can calculate discounted pay- |
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out if required |
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