10-PAGE PAPER WITH AN EXCEL CASHFLOW

PROJECT  SCENARIO

You have been selected by Oil Company to study an interesting prospect – a sour gas reservoir in a foreign country (Jordan). The host government is proposing two alternative methods to develop the field (described below), with gas used in local power generation, but at present only limited data is available, primarily from one well test (currently waiting for the service company to provide the data) and other reservoirs in the same country. You need to supplement existing data by making engineering estimates as required.

·         Word documents about the following topics are attached:

a-      Likely future product prices for gas and other products

b-      Decommissioning techniques and costs for facilities after abandonment

c-      Political and economic issues in Jordan

d-     What new technology could be applied to improve recovery and/or economics

·         Try to link the information obtained in these reports to the project.

·         Carry out the following tasks:

a-      Estimate the reserves and recoverable hydrocarbons for the reservoir. Attached is the Excel sheet for the data to be used.

b-      Make a development plan for the reservoir (number of wells, timing, production etc.).

c-      Develop a cash flow model using Excel spreadsheets.

d-     Plan for the entire field to be decommissioned by plugging and abandoning wells and removing and scrapping all facilities or other more-economic option.

e-      Compare the two development options proposed by the host government:

                                i.            A special service contract where the operating or service company handles all costs and is paid a fixed price per unit of gas produced (with ownership of any oil or condensate produced being transferred to the host government).

                              ii.            A concession contract in which all costs are handled by the operator, products are sold at market rates, and the government charges royalties and corporate tax.

f-       Estimate financial parameters which management could use to compare your project with others.

g-      Perform a risk analysis, including sensitivity studies using the cash flow model you have built, and use of other techniques to be presented in classes.

h-      Write a report (minimum 2000 words) describing all the work done above, and making recommendations as to which if any development option is worthy of more detailed evaluation. You must take into account the findings of the attached word documents.

i-        You will notice that there is no information concerning where the reservoir is located physically, other than the country. As I said you are at liberty to develop the scenario, so effectively you can chose whether it is offshore or onshore – but do make sure the whole team makes the same decision. Onshore will be cheaper, but you may find less information published about on-shore fields. Also, international partners are typically involved in developing more challenging reservoirs, such as offshore ones.

j-        - You have little in the way of constraints concerning how many wells to drill and when to drill them. However, you will have the reserves, and you should be able to work out how much gas one of your wells can produce over the project lifetime. This will allow you to put a cap on the number of wells you can drill – you should not plan a development that can produce more than the reserves!

k-      - You have little in the way of capital costs given, so you need to cost your facilities – based on the production volumes you are planning – hopefully based on costs for similar facilities you have found in the literature.

l-        - The same is true for abandonment and decommissioning costs. If you have found no analogue on which to base these costs, a simple rule of thumb is to assume the cost will be the same as the cost of all the capex used to set up the project – yes, it is expensive!