Petroleum Project Economics Econ210D
Presentation 2
• Geological structure maps
• Well logs
• Core data
• Reservoir fluid sample data
• Reserve estimates
• Production forecasts
2
Petroleum Engineering Analysis
Life Cycle of a Hydrocarbon Field
• Exploration
• Appraisal
• Development
• Production
• Abandonment
3
Decline Curve Analysis
• Tool in forecasting production over life of field.
• Decline curves are characterized by three main factors:
1.Initial production rate
2.The curvature of the decline
3.The rate of the decline
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Factors affecting Decline Curve:
• Formation parameters:
Porosity, permeability, thickness, fluid, saturation, viscosities, relative permeability, reservoir size, well spacing, compressibility, producing mechanisms & fracturing.
• Well bore parameters:
Hole diameter, formation damage, lifting mechanism, solution gas, free gas, fluid level, completion interval & mechanical conditions.
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Cash Inflows
• Revenue from selling output (oil and gas)
• Proceeds from sale of assets
• Disposal or salvage value at the end of the
investment
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Revenue
• Production
• Price
PRODUCTION PRICE REVENUE× =
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Cash Outflows
• Operating expenditure – costs which
arise on routine basis and are incurred to
carry out day to day operations
• Capital expenditure – cost of setting up
facilities to enable operations to take
place. These cost are not incurred on a
day to day basis. 9
Expenditure
• Operating Expenditure
• Capital Expenditure
Operating Expenditure
Capital Expenditure
Total Expenditure+ =
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Operating ExpenditureOperating Expenditure – the cost of running
everyday operations:
•Production costs
•Transportation costs
•General and administrative costs
•Maintenance
•Insurance11
Production Costs
• Costs incurred to operate, support and
maintain wells and related equipment and
facilities.
• This includes the cost of workovers
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General and Administrative Costs
These costs include:
• Salaries
• Training
• Office stationary,
• Information technology
• Office rental13
Capital Expenditure
Capital Expenditure includes all costs and
expenditure, which are incurred in carrying out:
•Exploration
•Appraisal
•Development
•Abandonment activities.
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Exploration Expenditures
Exploration costs are incurred to:
Identify areas that may warrant examination
Examine specific areas that are considered to
have prospects of containing oil and gas
reserves, including drilling exploratory wells15
Appraisal Expediture
Appraisal costs are incurred to :
• Carry out stratigraphic tests.
• Drill appraisal wells carried out to determine the
physical extent, reserves and likely production
rate of a field.16
Development Activities
Development costs are incurred to :
• Drill and equip development wells
• Acquire, construct and install production facilities
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Abandonment Expenditure
Also called decommissioning costs are incurred to:
1.Plug and abandon wells
2.Dismantle wellhead, production and transport
facilities
3.Remediate and restore producing areas
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1. Geological & Geophysical Costs: Seismic acquisition, processing and interpretation.
2. Drilling Costs for all wells (producers, injectors, subsea templates)
Rig costs Casing and tubing Drilling fluids Logging & coring Completion treatment Pumping equipment Wellhead assembly
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Capital Expenditure
3. Development costs: Flow lines Separators Treaters Production storage tanks Pipelines Offshore platforms Natural gas cycling and processing plant Compressors Power generation units, Waste disposal system
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Capital Expenditure
4. Abandonment costs - occur at the end of the project.
Comprises of plug costs
site restoration costs which
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Capital Expenditure
Tangible Capital Expenditures
This refers to amounts spent on various
kinds of equipment or physical structures
such as:
• Pipelines,
• Platforms,
• All other Structures and equipment22
Intangible Capital Expenditures
These are intangibles expenses which offer no resale
(salvage) value and includes:
•Seismic costs
•Labour expenses before productions begins
•Drilling rig cost and drilling Chemicals
•Drilling Mud
•Grease etc 23
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The Entire Life Cycle
Net Cashflow
• The net value of Cash Inflows and Cash
Outflows.
• Cash Inflows minus Cash Outflows.
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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
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Inflation
• Inflation can be defined as a sustained
increase in prices.
• The rate of inflation is stated as a
percentage.
• This represents the rate of changes of prices
between the current and previous year.
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Inflation
• 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.
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Inflation
• Since life of field of an oil or gas operation
usually spans a number of years, price
increases are encountered.
• Therefore in the forecasting of costs, inflation
needs to be factored into the estimates.
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Inflation• 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.
Year Production Costs per barrel in US$2010 $2.502011 2012 2013 2014 2015
68.2$07.0150.2 1 86.2$07.0150.2 2 06.3$07.0150.2 3 28.3$07.0150.2 4 51.3$07.0150.2 5
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Home Work
• Obtain estimates of all costs relating to the
life cycle of an oil or gas field.
• See slides 11 to 21 for a breakdown of the
items.
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