Workshop Simulated Licence Round 8 th - 10 th February 2012
description
Transcript of Workshop Simulated Licence Round 8 th - 10 th February 2012
Workshop
Simulated Licence Round
8th - 10th February 2012
Petroleum Economics
Workshop Outline … part 1
Workshop Outline … part 1
• You have been divided into groups of 8-9
• Each group is an exploration company (you’ll need a name) interested in bidding for blocks in an upcoming licence round
• The exercise will be run in parallel with 9 teams in each set
Set AGroup A1 Group A2 Group A3 Group A4 Group A5 Group A6 Group A7 Group A8 Group A9
Apampa Bakare Chukwudi Fadipe Fagbowore Ihe Obeahon Decroux Hennion
Anderson Barroso Viseras
Busch Charonnat Dieudonne El Hajbi Faure Gassabi Julkipli
Agrawal Alshawaf Alyapina Durongwattana
Haji Jasni Hou Imam Jehangir Petto
Baldwin Barkley Bullimore Devlin Dorai Harpin Hodgins Keay Lyne
Taylor Russell Riccio Baillet Cannelle Roblet-Bambridge
Varvara Patrick Burgess
Al Hooti Caratge Ceyhan Eres Guardia Haji Masri Kim Akatakpo Farhat Hussain
Rasheed Studer Tamunobereton-ari
Umoren Watson Zhang Kaewprain Kanafina Karalis
Sheyh Husein
Spyrou Fargo Segers Wood Tolessin Rajesh Kumar
Set BGroup B1 Group B2 Group B3 Group B4 Group B5 Group B6 Group B7 Group B8 Group B9
Izzidien Kaczmarczyk Karamessinis Lislaud McCaughan McDonald Mylonaki Pantin Rassuli
Jusoh Liew Nguyen Xiao Spronk Varadi Mago Valdivaiano Huertas
Khairullin Tariq
Phoowarang Sun Su Pointing Roberts Sinclair Smith
Thiakalingam Tranchina Twallin
McGreevy McKean Minns Eeva Dowdeswell Langan Lawry Reynolds Zheng
De Grouchy Dinwoodie Sloan Wang Zahari Kang Mohd. Asman Nnachetta Oboh
Kamaludin Nwachukwu Raphael Northall Oakley Okocha Paiva Almeda de Franca
Phillips Polisano
Kokoshina Li Ngeri Voake Loh Omofoma Sandiford Santacreu Llovera
Wilson
Prise
Geological Information
• You each have access to the same set of base data, which includes a map of the blocks on offer, prospect outlines, isopach data on the only prospective interval, and data on six wells adjacent to the blocks on offer
• Seismic data are first class over the entire area, and you have all mapped the top and base of the only prospective reservoir (a Tertiary channel sand) in an identical way.
• You therefore all have identical gross sand isopach interpretations (contour interval 100 ft) and prospect outlines:
Investment Appraisal Exercise9-block Licence Award Area
100
100
200
200 Forfar
Crieff
Brechin
EdinburghDundee
Glasgow
Helmsdale
Inverurie
.1
..
2
5
3
64
Orange areas are prospect outlinesBlack contours are 100 ft isopachs
Aberdeen
¡
¡
¡0
0
Geological Cross Section A-A’
Geological Cross Section B-B’
Prospect Details
Prospect GRV (k acre feet) Trap Type
Aberdeen 100 4-way dip
Brechin 250 Stratigraphic
Crieff 160 Stratigraphic
Dundee 250 4-way dip
Edinburgh 150 4-way dip
Forfar 175 Upthrown fault block
Glasgow 275 Stratigraphic
Helmsdale 200 Upthrown fault block
Inverurie 250 4-way dip
[Remember that units are tricky ... GRV is measured in acre feet, and reserves are quoted in barrels, so use the conversion factor of 7758 barrels per acre foot.]
• You have each planimetered the prospect maps in the same way, and have assessed the gross rock volumes of the various prospects as follows:
More Geological Information
You all have the following information, and only this information, from the 6 wells drilled nearby:
Well N/G Porosity SHC Re FVF (RB/STB)
1 0.80 0.32 0.80 0.45 1.15
2 0.60 0.26 0.00 N/A N/A
3 0.50 0.28 0.85 0.35 1.15
4 0.30 0.25 0.00 N/A N/A
5 0.65 0.28 0.00 N/A N/A
6 0.40 0.22 0.60 0.30 1.15
Wells 1, 3 and 6 all recovered oil, GOR about 100 scf/Bbl, gas volumes sufficient only for platform fuel
Upstream Oil Industry ... volumetric assessment - recap
Recoverable Hydrocarbons
GRV (Gross Rock Volume)*N/G (Net reservoir to Gross rock ratio)*Ø (Porosity)*Shc (hydrocarbon saturation of pore fluids)*1/FVF (Formation Volume Factor)*RF (Recovery Factor)
Basis: correlation with nearby wells/data
Assessing Risk - recap
• Play Chance (%)Reservoir presence (%) * Reservoir Effectiveness (%)Seal presence (%) * Seal Effectiveness (%)Source presence (%) * Source maturity (%) * Source migration (%)
• Prospect Specific Risk (%)Trap presence (%) * Trap effectiveness (%)Reservoir presence (%) * Reservoir Effectiveness (%)Seal presence (%) * Seal Effectiveness (%)Source presence (%) * Source maturity (%) * Source migration (%)
Overall Chance of Success = Play Chance * Prospect Specific Risk
Assessing Risk
Assume the following:
• Play is proven
• Prospect Specific Risks are independent
• Remember we are using a dice to decide when a well is successful, therefore your chance of success can only be
1/6 (16.67%)
2/6 (33.33%)
3/6 (50%)
4/6 (66.67%)
5/6 (83.33%)
6/6 (100%)
Workshop Output … part 1
• Assign an input distribution to Ø, N/G, Shc, FVF for each
prospect.
• You are supplied with the GRV and Re distributions to use in
the work file
• Complete a volumetric assessment of the nine blocks
available for bid.
• Estimate the chance of success for each prospect
• Tabulate both unrisked and risked Resources for each prospect
• Consolidate your risked and unrisked recoverable Resource
estimates to give the total Resource potential of the nine
blocks
• Calculate the chance of making at least 1 discovery if all 9
prospects are drilled
Workshop Outline … part 2
Workshop Outline … part 2• Continue to work in your groups.
• Use your volumetric and risk assessment of the nine blocks available for bid.
• You are required to prepare cash bids for those blocks you wish to acquire, and each team has a budget of $1 billion for that purpose, $250 million from retained profits from the business and a $750 million borrowing facility.
• Produce a risked valuation of each prospect and rank them in order of attractiveness to you.
• Prepare a bid for at least 4 of the blocks
Workshop Outline … part 2
• If your bids are unsuccessful, or you choose not to spend all of your budget, then any remaining retained profits are invested safely at 6% pa compound interest, after tax, for the period during which exploration, appraisal and production activity takes place … the borrowing facility not needed is not used.
• The successful bidder for each block will be decided by the Petroleum Minister based on the highest cash bid. The outcome of an exploration well on each of the prospects is determined by the throw of a dice. The values of each of the companies are determined by the Present Values of the discoveries, plus the compounded present value of unspent retained profits, less abortive costs.
Economic Modelling
• Assemble the cash flows by year, considering the magnitude and timing of all the costs associated with purchasing, developing and producing the prospect.
• You will be provided with a simple cash flow model
• Calculate NPV’s and EMV for each prospect (3 point)
Project schedule
2012 2013 2014 2015 2016 2017 2018 2019 ……
yr 0 yr 1 yr 2 yr 3 yr 4 yr 5 yr 6 yr 7
Acquire licence x
2D seismic x
Drill Expl. well x
(if successful)
3D seismic x
Drill Appr. Wells x
Dev CAPEX x x x
Dev Drilling x
1st production x
Economic Input
• Costs: all amounts expressed in real US$
• Licence Acquisition - whatever you bid, in year zero
• CAPEX, DRILLEX, OPEX, [ABEX] - Costs for all of these depend on field production rates. The following slides allow you to estimate costs for your prospects.
• Forecast production – you will need to turn your recoverable oil volumes into annual production data (see following slides)
• Bids must be made in US$
Seismic Costs
Assume the following:
• 2D seismic costs US$1.5 million to acquire
• 3D seismic costs US$6.0 million to acquire
• 3D seismic takes 1 year to acquire and interpret
Drilling Costs (Drillex)Assume the following:
• all E&A wells cost US$35 million (REAL)
• Exploration well is drilled in 2012
• all successes require appraisal (2014)
• number of appraisal wells is related to level of resources (1 well for every 30 MMbbls)
• Recovery of oil is around 10 MMbbls per development well
• all Dev wells cost US$30 million (REAL)
Assume the following:
• Subsea completion costs US$35 million (REAL) per producing well
FPSO Costs (CAPEX)
Production rate (stb/d) 25,000 50,000 100,000 150,000 200,000 250,000Total FPSO CAPEX (US$ million REAL) 400 570 1,000 1,425 1,875 2,325
Tip: Plot CAPEX vs. Production rate and use plot to interpolate. Don’t forget the costs are linked to daily production rate not annual volume of oil
Minimum CAPEX = US$400 milllion
Assume CAPEX is spent evenly over 3 years prior to first production
FPSO Costs (CAPEX)
Tip: Use the plot of CAPEX vs. Production rate to derive a relationship between production rate and cost. Use this relationship to interpolate for the CAPEX in your cases. Don’t forget the costs are linked to daily production rate not annual volume of oil
Operating Costs (Opex)
Production rate (stb/d) 25,000 50,000 100,000 150,000 200,000 250,000Total FPSO OPEX (US$ million REAL) 35 50 80 100 125 140
Annual fixed OPEX:
Minimum fixed OPEX = US$35 per year
Annual variable OPEX:
Tip: Plot fixed and variable OPEX vs. Production rate and use plots to interpolate. Don’t forget the costs are linked to daily production rate not annual volume of oil
Production rate (stb/d) 25,000 50,000 100,000 150,000 200,000 250,000Total FPSO Variable OPEX (US$/bbl REAL) 1.25 1.10 0.85 0.70 0.60 0.50
Production forecasts
• The reservoirs are capable of producing 14% of the total resources per year at peak, and the facilities and wells should be costed accordingly.
• Assume peak production is achieved instantaneously
• Production will decline after 5 years on plateau or once 70% of the field's resources have been produced
• Declining reservoir pressure means that production rates decline by 20% per year (declining balance basis).
Production profile example
Annual Production (MMbbls)
Cumulative Production (MMbbls)
%age of Resources Produced
Average Daily Production Rate (stb/d)
14.00 14.00 14% 38,35614.00 28.00 28% 38,35614.00 42.00 42% 38,35614.00 56.00 56% 38,35614.00 70.00 70% 38,35611.20 81.20 81% 30,6858.96 90.16 90% 24,5487.17 97.33 97% 19,6382.67 100.00 100% 7,321
100.00 100%100.00 100%100.00 100%
100 MMbbls
Further Economic Input
• Oil price, discount rate, inflation rate - some analysts currently advise $95/bbl flat real and 10% nominal, respectively. Please use these assumptions. The model will assume that the general inflation rate is 2% per annum.
• Tax Rate - Corporation tax is currently levied at 50% of net revenues (i.e. gross revenues minus allowable expenditure) ... the spreadsheet does the calculation for you.
Oil forecast examples
Oil price
Quality Differential – 95% of Brent
EMVProbability Unrisked Risked Unrisked Risked
Resources Resources NPV10 NPV10% MMbbls MMbbls £MM £MM
30%P10 0.00% 0.00 0.0
40%P50 0.00% 0.00 0.0
Success30%
0.00% P90 0.00% 0.00 0.0
100.00%
Dry
100.00% 0 0.00 0.0
Σ = 100.00% 0.00 0.0Risked Mean Resources EMV10
Tip on how to get started
• To do the valuation rigorously would require you to compute 27 net cash flows representing the P90, P50 and P10 cases for every prospect.
• To save time plot unrisked NPV10 against unrisked recoverable resources. Complete as many cases as you can but do enough to define the shape of the curve.
• Fit a trend line to the data and extract function
• Use this to compute the NPV10 for your 27 cases and then the EMV10 of each prospect
NPV10 vs. Field Size Plot
Minimum Commercial Field Size
Cost of FailureProbability Unrisked Risked Unrisked Risked
Resources Resources NPV10 NPV10% MMbbls MMbbls £MM £MM
30%P10 0.00% 0.00 0.0
40%P50 0.00% 0.00 0.0
Success30%
0.00% P90 0.00% 0.00 0.0
100.00%
Dry
100.00% 0 0.00 0.0
Σ = 100.00% 0.00 0.0Risked Mean Resources EMV10
Cost of failure after dry hole
Cost of failure if discovered volume
is < minimum commercial field
size
Cost of Failure (after dry hole)
Seismic Expl Drilling Total Total Total Disc. TotalUS$ REAL US$ REAL US$ REAL US$ MOD £ MOD £ MOD
2011 0.0 0.0 0.0 0.02012 0.0 0.0 0.0 0.02013 0.0 0.0 0.0 0.02014 0.0 0.0 0.0 0.0Total 0.0 0.0 0.0 0.0 0.0 0.0
After Tax 0.0
Probability Unrisked Risked Unrisked RiskedResources Resources NPV10 NPV10
% MMbbls MMbbls £MM £MM30%
P10 0.00% 0.00 0.0
40%P50 0.00% 0.00 0.0
Success30%
0.00% P90 0.00% 0.00 0.0
100.00%
Dry
100.00% 0 0.00 0.0
Σ = 100.00% 0.00 0.0Risked Mean Resources EMV10
Cost of Failure (after appraisal)
Probability Unrisked Risked Unrisked RiskedResources Resources NPV10 NPV10
% MMbbls MMbbls £MM £MM30%
P10 0.00% 0.00 0.0
40%P50 0.00% 0.00 0.0
Success30%
0.00% P90 0.00% 0.00 0.0
100.00%
Dry
100.00% 0 0.00 0.0
Σ = 100.00% 0.00 0.0Risked Mean Resources EMV10
Seismic Expl Dril l ing Appr Dril l ing Total Total Total Disc. TotalUS$ REAL US$ REAL US$ REAL US$ REAL US$ MOD £ MOD £ MOD
2011 0.0 0.0 0.0 0.02012 0.0 0.0 0.0 0.02013 0.0 0.0 0.0 0.02014 0.0 0.0 0.0 0.0Total 0.0 0.0 0.0 0.0 0.0 0.0 0.0
After Tax 0.0
Tax position
• Assume that this will be your first asset and your company is not yet in a tax paying position
• Tax losses will be carried forward until they can be used (the model will do this for you)
• If you are unsuccessful there will be no tax relief on your failure costs
Bid Table
• Bids to be delivered in sealed envelope by lunch time on Friday
• You must bid for at least 4 prospects
• List all 9 prospects in order of preference and indicate which you are submitting a bid for.
• You should use EMV as the basis of your bids
• If you decide to offer a premium over the EMV remember that the unrisked success NPV’s should be able to cover the bid
• Label the bid sheet and envelope with your company name
• Each team will only be awarded one prospect
• Do not exceed your overall budget limit of $1000 million