Engineering Economy in Upstream Oil & Gas Field Development

Mac Darlington Uche ONUOHA, Menglan DUAN

Description

The business of upstream oil and gas industry is a complex process that involves multidisciplinary participation. Producing crude oil and natural gas from the subsurface reservoir rocks to the point of the selling terminal requires stage by stage processes that costs several hundreds of millions of dollars to the operating companies. Because of the capital intensive nature of upstream investments, every required process is challenged of its economic impact or benefits it will have on the project’s net present value (NPV). The techniques applied in determining the economics of these processes and their selection criteria are addressed in the book.

This book guides the reader through these strategic processes, and presents the participants involved in the business of upstream oil and gas prospecting and the conditions that dictate the field development and investment decisions by investors. It also reveals the shared interests and relationships that exist between international oil companies (IOCs) and national oil companies (NOCs) in the exploration and exploitation of their hydrocarbon resources and reserves. This text will serve the purpose of teaching and learning to those in the energy and financial sectors, as the methods, tools, and techniques discussed throughout the chapters will equip students, tutors, experts, and professionals with the necessary skills and knowledge of Exploration and Production (E&P) projects and energy financing and investment. The principles of project management as it applies in upstream oil/gas projects are discussed as well. And the criteria for project ranking, selection, and budgeting which are sine qua non to project financing and execution are well documented in this book.

About the Authors
Preface
Acknowledgements

CHAPTER 1
Bidding and Petroleum Fiscal Instruments 
1.1 Concessionary License Agreement
1.2 Contractual Agreement 
1.2.1 Production Sharing Contract (PSC) 
1.2.2 Service Contract 
1.2.3 Joint Venture Agreement

CHAPTER 2
Exploration & Reserve Estimation
2.1 Discovered Resources 
2.1.1 Basics of a Petroleum System 
2.1.2 Geophysical Methods for Oil & Gas Exploration 
2.1.3 Volumetric Estimation of Hydrocarbons in Place
2.2 Recoverable Resources (Reserves)
2.2.1 Proved Reserves 
2.2.2 Unproved Reserves

CHAPTER 3
Appraisal and Field Development Planning
3.1 Field Appraisal 
3.2 Comprehensive Field Development Data 
3.2.1 Geological and Reserve Data 
3.2.2 Reservoir Data
3.2.3 Reservoir Simulation and Production Forecast
3.2.4 Drilling Program and Well Completion Design Plan
3.2.5 Production Period and Abandonment
3.3 Technological Requirement & Challenges
3.4 Safety and Environmental Policy 
3.5 Production Operation, Workover, and Maintenance Plan

CHAPTER 4
Economic Analysis of a Typical Upstream Development Project
4.1 Basic Concepts in Economic and Financial Analysis 
4.1.1 Economic Evaluation Indicators 
4.1.2 Cash Flow Diagram 
4.1.3 Discounting
4.1.4 Time Value of Money and Economic Equivalence 
4.1.5 Depreciation and Salvage Value
4.1.6 Taxable Income
4.2 Case Study-Application of Economic Tools for Upstream Oil & Gas Project Evaluation 
4.2.1 The Case Study (Data Presented Here Are not Real but Used for Exercise)

CHAPTER 5
Investment Decision and Project Selection
5.1 Capital Budgeting and Rationing
5.2 Project Ranking 
5.3 Comparison of Project Alternatives
5.4 Inflation 

CHAPTER 6
Project Management in Upstream Oil & Gas Field Development
6.1 An Overview of Project Management
6.2 Process Groups in Project Management 
6.2.1 Project Initiating 
6.2.2 Project Planning 
6.2.3 Project Executing 
6.2.4 Project Monitoring and Controlling 
6.2.5 Project Closing 
6.3 Work Breakdown Structure (WBS)
6.4 Design Proposals 
6.5 Project Budgeting 
6.6 Project Risk Plan, Assessment, and Management
6.7 Role of Project Manager and Team Management 
6.8 Project Quality Management 

Bibliography
Index 

Sujets

• Techniques
• Energie et Environnement
• Technologies de fabrication
• Industrial Engineering
• Sciences et techniques
• NRJ (Canada)
• Technology
• Engineering
• Énergie
• Ingénierie
• Energie & environnement

Informations

• Publié par: EDP Sciences
• Date de parution: 10 décembre 2020
• Nombre de lectures: 0
• EAN13: 9782759825011
• Langue: English
• Poids de l'ouvrage: 12 Mo

Extrait

Current Natural Sciences

Menglan DUAN and Mac Darlington Uche ONUOHA

Engineering Economy in Upstream Oil & Gas Field Development

E C O N O M Y

E C O N O M Y

ISBN : 978-2-7598-2488-5

Current Natural Sciences

Engineering Economy in Upstream Oil & Gas Field Development A Concise Appraisal Technique for Investment Decision in Upstream Oil/Gas Projects

Menglan DUAN and Mac Darlington Uche ONUOHA

The business of upstream oil and gas industry is a complex pro- cess that involves multidisciplinary participation. Producing crude oil and natural gas from the subsurface reservoir rocks to the point of the selling terminal requires stage by stage pro- cesses that costs several hundreds of millions of dollars to the operating companies. Because of the capital intensive nature of upstream investments, every required process is challenged of its economic impact or benefits it will have on the project’s net present value (NPV). The techniques applied in determining the economics of these processes and their selection criteria are addressed in the book.

This book guides the reader through these strategic processes, and presents the participants involved in the business of upstream oil and gas prospecting and the conditions that dictate the field development and investment decisions by investors. It also reveals the shared interests and relationships that exist between international oil companies (IOCs) and national oil companies (NOCs) in the exploration and exploitation of their hydrocarbon resources and reserves. This text will serve the purpose of teaching and learning to those in the energy and financial sectors, as the methods, tools, and techniques discussed throughout the chapters will equip students, tutors, experts, and professionals with the necessary skills and knowledge of Exploration and Production (E&P) projects and energy financing and investment. The principles of project management as it applies in upstream oil/gas projects are discussed as well. And the criteria for project ranking, selection, and budgeting which are sine qua non to project financing and execution are well documented in this book.

www.edpsciences.org

Current Natural Sciences

Menglan DUAN and Mac Darlington Uche ONUOHA

Engineering Economy in Upstream Oil & Gas Field Development

A Concise Appraisal Technique for Investment Decision in Upstream Oil/Gas Projects

Printed in France

EDP Sciences–ISBN(print): 9782759824885–ISBN(ebook): 9782759825011 DOI: 10.1051/9782759824885

All rights relative to translation, adaptation and reproduction by any means whatsoever are reserved, worldwide. In accordance with the terms of paragraphs 2 and 3 of Article 41 of the French Act dated March 11, 1957,“copies or reproductions reserved strictly for private use and not intended for collective use”and, on the other hand, analyses and short quotations for example or illustrative purposes, are allowed. Otherwise,“any representation or reproduction–whether in full or in part–without the consent of the author or of his successors or assigns, is unlawful”(Article 40, paragraph 1). Any representation or reproduction, by any means whatsoever, will therefore be deemed an infringement of copyright punishable under Articles 425 and following of the French Penal Code.

Science Press, EDP Sciences, 2020

About

the

Authors

Menglan DuanCollege of Safety and Ocean Engineering, China University of Petroleum (Beijing), China Menglan Duan is the Dean of the College of Safety and Ocean Engineering, China University of Petroleum, Bei jing, and a Professor of solid mechanics and ocean engineering. Professor Duan is an astute scholar with international reputation and has published over 400 technical papers including 104 SCIindexed journal papers. He has covered a wide range of research areas and has conducted over 170 projects related to fixed and mobile platforms, subsea pipelines and risers, subsea production systems in Artic Mechanics and Offshore Engineering, Subsea Engi neering, Fatigue and Failures of Materials and Structures, Dynamics of Offshore Engineering Structures, Mechanical Behaviour of Materials, and Risk and Reliabil ity in Offshore and Ocean Engineering. His other areas of interest include management and economic analysis of oil/gas projects.

Mac Darlington Uche OnuohaCollege of Safety and Ocean Engineering, China University of Petroleum (Beijing), China Mac Darlington Uche Onuoha is an Assistant Professor of Solid/Fluid Mechanics and Offshore Oil & Gas Engineer ing at the College of Safety and Ocean Engineering, China University of Petroleum, Beijing. Dr. Onuoha is a young scholar with strong academic and research accomplish ments. He has authored 7 publications in top international journals and conferences covering research areas such as, Flow Assurance in Deepwater Pipelines and Risers,

IV

About the Authors

Dynamics of Deepwater Riser Structures induced by Internal Severe Slug Loads, Multiphase Flow Simulation in PipelineRiser System, Finite Element Modeling and Analysis (FEM/FEA) of Offshore Structures, and Petroleum Economics and Feasibility Analysis of Upstream Investment. His research interest focuses on FluidStructure Interactions (FSI) of Subsea Production Systems, Dynamic Behaviour of Rigid & Flexible Risers, and Computational Fluid Dynamics of Multiphase Flows in FlowlinesRiser Pipe Systems.

Contents

About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CHAPTER 1 Bidding and Petroleum Fiscal Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 Concessionary License Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 Contractual Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2.1 Production Sharing Contract (PSC) . . . . . . . . . . . . . . . . . . . . . 1.2.2 Service Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2.3 Joint Venture Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CHAPTER 2 Exploration & Reserve Estimation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Discovered Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1.1 Basics of a Petroleum System . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1.2 Geophysical Methods for Oil & Gas Exploration . . . . . . . . . . . . 2.1.3 Volumetric Estimation of Hydrocarbons in Place . . . . . . . . . . . . 2.2 Recoverable Resources (Reserves) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.1 Proved Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.2 Unproved Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CHAPTER 3 Appraisal and Field Development Planning . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Field Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Comprehensive Field Development Data . . . . . . . . . . . . . . . . . . . . . . . 3.2.1 Geological and Reserve Data . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.2 Reservoir Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.3 Reservoir Simulation and Production Forecast . . . . . . . . . . . . . 3.2.4 Drilling Program and Well Completion Design Plan . . . . . . . . . 3.2.5 Production Period and Abandonment . . . . . . . . . . . . . . . . . . . .

III VII IX

1 6 8 8 11 11

13 13 14 22 37 41 42 50

51 51 58 58 66 82 94 117

VI

3.3 3.4 3.5

Contents

Technological Requirement & Challenges . . . . . . . . . . . . . . . . . . . . . . . Safety and Environmental Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Production Operation, Workover, and Maintenance Plan . . . . . . . . . . .

CHAPTER 4 Economic Analysis of a Typical Upstream Development Project . . . . . . . . . . 4.1 Basic Concepts in Economic and Financial Analysis . . . . . . . . . . . . . . . 4.1.1 Economic Evaluation Indicators . . . . . . . . . . . . . . . . . . . . . . . . 4.1.2 Cash Flow Diagram . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1.3 Discounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1.4 Time Value of Money and Economic Equivalence . . . . . . . . . . . 4.1.5 Depreciation and Salvage Value . . . . . . . . . . . . . . . . . . . . . . . . 4.1.6 Taxable Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Case StudyApplication of Economic Tools for Upstream Oil & Gas Project Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.1 The Case Study (Data Presented Here Are not Real but Used for Exercise) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CHAPTER 5 Investment Decision and Project Selection . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1 Capital Budgeting and Rationing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2 Project Ranking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3 Comparison of Project Alternatives . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CHAPTER 6 Project Management in Upstream Oil & Gas Field Development . . . . . . . . . 6.1 An Overview of Project Management . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2 Process Groups in Project Management . . . . . . . . . . . . . . . . . . . . . . . . 6.2.1 Project Initiating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2.2 Project Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2.3 Project Executing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2.4 Project Monitoring and Controlling . . . . . . . . . . . . . . . . . . . . . 6.2.5 Project Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3 Work Breakdown Structure (WBS) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4 Design Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5 Project Budgeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.6 Project Risk Plan, Assessment, and Management . . . . . . . . . . . . . . . . . 6.7 Role of Project Manager and Team Management . . . . . . . . . . . . . . . . . 6.8 Project Quality Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

123 123 124

151 151 151 169 177 179 196 202

203

203

215 215 216 217 225

229 233 233 233 235 238 239 240 242 245 245 248 253 257 261 265

Preface

The thought of writing this book came into our minds after discovering there are little resources that put together comprehensive and stepbystep procedures and techniques that are applied in the economic analysis of upstream oil/gas engineering projects. The subject addressed in this book is an important and indispensable topic in petroleum engineering, especially in the upstream sector which involves oilfield development and production planning. The core concept of this piece is not only meant for the petroleum sector but can also be extended to other sectors where a thorough economic evaluation is required to be carried out before any investment decision on a potential project commitment. Engineering Economy in Upstream Oil/Gas Field Development is a book that is selectively designed to serve the purpose of a teaching and learning material for courses in petroleum economics, energy finance, economic analysis, and little insight into project management. The book gives an account of all the scenarios and activities surrounding the business of oil and gas exploration and production in a given oil producing market. The chapters are presented in a sequential order that dictates the chronological stages involved between the national oil companies (NOCs)i.e.the host governments and the international oil companies (IOCs) during the process of license acquisition, exploration, and development of a leased oil block, in addition to project management and risk analysis. The synopsis of the methods, techniques, and theories covered in each of the chapters will also be discussed. Chapter1explains the legal proceedings followed by operators (i.e.IOCs) in oilproducing countries (i.e.Host governments) for the purpose of being awarded the exploration license of several acreage of oil blocks. This acquisition of rights comes in different terms depending upon the fiscal regime of the host government. Procedures to be followed in the event of oil discovery are also discussed in this chapter.

DOI: 10.1051/9782759824885.c901 © Science Press, EDP Sciences, 2020

VIII

Preface

Chapter2discusses the techniques and methods employed by exploration companies when searching for the black gold and the volumetric estimation of the recoverable quantities of oil (Reserves) in the event of a potential discovery of hydrocarbon deposits. Chapter3focuses on the positive outcome of oil exploration by providing technical details and other considerations put forward by prospective investors (Operating companies or IOCs) during planning and development phases of the discovered field, as the aim of the authors is to draw attention of readers to the stage by stage processes involved in the exploration and exploitation of petroleum resources by IOCs. Chapter4details the application of economic tools in evaluating the profitability and feasibility of a proposed project with a contextual analysis of an upstream field development case study. Chapter5dwells on whether there is any satisfactory outcome of the economic analysis performed on the proposed project which serves as an important input and valuable data that guide decisionmakers in approving or disapproving the execution of the intended project for or against the interest of the company and its share holders. It further discusses the concept of project ranking when comparing alter native investments that are independent, which helps investors to make a decisive choice in their project selection. Chapter6introduces slightly, the elements of project management as it relates to upstream field development projects with the view to enlighten the students on the multidimensional course of project management. Our objectives in producing this piece are to inculcate in the minds of our readers the ability and skills they would need in order to effectively conduct economic analysis and interpretation of results for their upstream and other related oil/gas engineering projects. The successful application of the knowledge gained in this book will require a strong background of the computational environment such as Excel, Matlab, Mathcad software and other wellstructured programming languages in the likes of Visual Basics, Fortran 90, and C/C++. We have endeavoured to provide sufficient theories, methods, and techniques to help both the instructors and stu dents in advancing the teachings and learning of this subject, and we do hope that this book will achieve the purpose and intentions of its authorship.

Menglan Duan Mac Darlington Uche Onuoha