Economic Modeling

for
Petroleum Projects

26th September 2017

Life Cycle of Petroleum Projects
Government and Contractor Take in PSC s
Information Required in Net Cash
Flow Determination
Structure of Project Costs
First Group of Inputs in the
Economic Model
Second Group of Inputs in the
Economic Model
Second Group of Inputs in the
Economic Model
Third Group of Inputs in the
Economic Model
Fifth Group of Inputs in the
Economic Model
Sixth Group of Inputs in the
Economic Model
Sample Case -Oil
NPV of Sample Case Economic
Model
Sample Production Profile

Plateau
Net-Cash Flow and Payback
Period Profile
Government and Contractor Take
Profile
Decision Tree Based on Expected
Monetary Values (NPV=15%)
Summary of Economic Model
Outputs
Inputs for Deterministic
Sensitivity Analysis
One variable variation at a time
 Response of Net Cash Flow to
Deterministic Sensitivity Analysis
One variable variation at a time
Response of IRR to Deterministic
Sensitivity Analysis
One variable variation at a time
 Response of Payback Period to
Deterministic Sensitivity Analysis
One variable variation at a time
 Response of Take Indicators to
Deterministic Sensitivity Analysis
One variable variation at a time
 Inputs for Multi-Variable
Variations Sensitivity Analysis
More than one variable varied and correlated
 Response of NCF and NPV to
Multi-Variate Sensitivity Analysis
More than one variable varied and correlated

Most optimistic
case

Least optimistic
case
 Response of Expected Monetary Value
(EMV) to Multi-Variate Sensitivity
Analysis
More than one variable varied and correlated

Most attractive
scenario for
project to
proceed
Non-attractive
scenario for
project to
proceed

The expected monetary values are very sensitive indicators to price, production,
and field cost variations
 Response of IRR to Multi-Variate
Sensitivity Analysis
More than one variable varied and correlated

Highest return
on investment
Lowest return on
investment (not
shown = 21%)

IRR increases from 42% to 59% when price and production are increased and the
field cost decreased (G3). The lowest IRR at 21% is registered by decreases in the
price by 40%, production by 20% and increased field cost by 20% (G7-not shown).
 Response of Payback Period to
Multi-Variate Sensitivity Analysis
More than one variable varied and correlated

Payback period of model base case is not so sensitive to multi-variable variations

and does not become shorter than 7 years, but it became longer; in the worst
case scenario (G7) it increases from 7 to 9 years.
 Response of Take Indicators to
Multi-Variate Sensitivity Analysis
More than one variable varied and correlated

Highest take for Lowest take for

government and government and
contractor contractor
Conclusions
1. Petroleum economic modeling provides an ideal approach for evaluating
potential petroleum projects, or the re-evaluation of existing petroleum
projects after a successful exploration project prior to the development or
production phases.

2. It also supports the preparation of strategies, the decision analysis at

various times before the project starts and later at any time of the projects
life cycle in order to optimize the risk management and the design of finance
and investment policies.

3. The modeling helps identify possible future problems in the course of

project implementation and support the project management to take
corrective action as well as in making optimal investment decisions

4. In the model case presented oil production, oil price and field cost appear to
represent the most significant uncertain variables that significantly affect
the economics of a project.

5. Other models for decision and risk assessment analyses include , for
possibility: FuzzyCalc ,Quantor, and Oracle Crystal Ball ; for probability:
Monte Carlo Simulation.
 Merak Peep

Also see:
http://www.software.slb.com/products/merak

http://www.winsite.com/merak/merak+merak/index3.html