Course:- 28117Class:- 289083

HERIOT-WATT UNIVERSITYDEPARTMENT OF PETROLEUM ENGINEERING

Examination for the Degree ofMEng in Petroleum Engineering

Petroleum Project Economics

Tuesday 21st April, 199809.30 - 13.30

NOTES FOR CANDIDATES

1. This is a Closed Book Examination.

2. 15 minutes reading time is provided from 09.15 - 09.30.

3. Examination Papers will be marked anonymously. See separate instructionsfor completion of Script Book front covers and attachment of loose pages.Do not write your name on any loose pages which are submitted as part ofyour answer.

4. There are NINE questions. A maximum of SIX numbered questions should beattempted.

5 All numbered Questions have equal value. Marks out of forty for each sub question are indicated in brackets.

6. This Examination represents 80% of the Class assessment.

7. Data used in numerical questions are derived from published sources.

8. Candidates are provided with a set of Economic Tables, including discountfactors and inflation statistics.

9 State clearly any assumptions used and intermediate calculations made innumerical questions. No marks can be given for an incorrect answer if themethod of calculation is not presented.

1. Marine and Land Transport Ltd [MALT] has a number of investmentopportunities available, including three small gas prospects in the SouthernBasin of the North Sea. These are currently designated Ardbeg, Bowmoreand Cardhu prospects by the company.

All three fields were discovered in 1996 and have been the target of anappraisal drilling programme during 1996-1997. One final appraisal well iscommitted on Bowmore during 1998.

Although no agreement has been signed, it is expected that gas from all threefields could be exported through the National Industrial Pipeline System[NIPS].

(a) Determine whether these prospects are economically viable on the basis of theinformation provided in Tables 1a, b, c, d below.

State any assumptions that you make and justify the screening criterion used. [10]

(b) MALT has limited financial resources and may not be able to fund all itsinvestment opportunities at this time.

Prepare a short report for MALT management to advise them of anappropriate rank order for these three prospects. Include a justification foryour choice of ranking criterion.

[5]

(c) MALT has a 33.33% interest in these three prospects and has beenapproached by one of its partners in the licences, Currie and SighthillKerosene Ltd [CASK], to sell this interest.

Compute an appropriate selling price for this 33.33% share.Assume that the transaction date would be 1st July, 1998.

Review those factors which might result in MALT and CASK having differentviews as to an appropriate price.

[5]

Note that additional copies of cash flow Tables 1b, c & d are provided tofacilitate analysis. These should be returned with your answer books.

TABLE 1a:- MALT PROSPECT DATA

Prospect Ardbeg Bowmore Cardhu

Recoverable ReservesBcf(10^9) 250 150 120

Plateau Rate (MMcfd) 100 65 45

Start up date 2000 2000 2000

Development Start 1998 1999 1999

Water Depth (m) 49 37 35

Facilities UnmannedJacket

Monotower Subsea

Export Tariff Tariff Tariff

Capex (£ mod millions) 120 80 70

Opex (£1998 millions) 5 3 2

Tariff (£1998/Mcf) 0.3 0.3 0.3

Inflation 5% 5% 5%

Note that “Opex” listed above is a fixed annual amount.In the cash flow tables which follow, the Opex values include Tariff.

TABLE 1b:- ARDBEG CASH FLOWS(£millions mod)

MMcf d Rev. Opex CTax Capex NCF

1995 1 -1

1996 15 -15

1997 5 -5

1998 5 -5

1999 75 -75

2000 25 18 6 30 -18

2001 100 76 18 10 48

2002 100 80 19 61

2003 100 84 20 11 53

2004 80 70 18 19 33

2005 70 65 15 16 34

2006 60 58 14 15 29

2007 50 51 13 14 24

2008 40 43 12 12 19

2009 30 34 11 10 13

2110 20 24 9 7 8

2111 10 12 8 4 0

2112 1 20 -21

2113 -7 7

TABLE 1c:- BOWMORE CASH FLOWS(£millions mod)

MMcf d Rev. Opex CTax Capex NCF

1995 1 -1

1996 5 -5

1997 5 -5

1998 5 -5

1999 30 -30

2000 10 7 2 45 -40

2001 65 49 11 5 33

2002 65 52 11 41

2003 65 54 12 8 34

2004 65 57 12 12 33

2005 55 51 11 13 27

2006 43 42 10 12 20

2007 28 28 8 10 10

2008 16 17 6 6 5

2009 3 10 -13

2010 -4 4

TABLE 1d:- CARDHU CASH FLOWS(£millions mod)

MMcf d Rev. Opex CTax Capex NCF

1995 1 -1

1996 10 -10

1997 5 -5

1998

1999 45 -45

2000 10 7 3 25 -21

2001 45 32 9 23

2002 45 34 9 25

2003 45 36 10 26

2004 45 38 10 7 21

2005 42 37 10 8 19

2006 37 34 10 8 16

2007 33 32 10 7 15

2008 26 26 9 7 10

2009 5 10 -15

2010 -4 4

2. Define or explain the following terms:-

"Money of the Day"“Retail Price Index”"Real Terms" or "Constant Money"

[3]

(b) The cash flows in Table 2 are in Money of the Day terms.Convert the Net Cash Flow [NCF] to £ 1998. [5]

(c) What are the benefits of having a project cash flow model in Money of theDay terms? [4]

(d) What are the benefits of having a project NCF in Real Terms?[4]

(e) During a 10 year period, an initial investment of £1000 grew to a terminalvalue of £2158.93. At the same time, the Retail Price Index increased from540 to 725.7.

What was the real, annual compounded rate of interest achieved during thisinvestment?

How long would it take at this rate for the purchasing power of theinvestment to double?

[4]

Note that additional copies of cash flow Table 2 is provided to facilitateanalysis. This should be returned with your answer books.

TABLE 2:- GAWAIN FIELD CASH FLOW[Money of the Day]

Note that inflation from 1998 onwards is assumed to beat a constant rate of 3% per annum

Revenue Taxes Opex Capex NCF

£ m £ m £ m £ m £ m

1993

1994 39 -39

1995 6 2 21 -17

1996 59 11 48

1997 55 3 10 42

1998 52 13 10 29

1999 38 12 8 5 18

2000 23 9 6 9

2001 14 5 4 5

2002 10 3 4 3

2003 7 2 3 2

2004 1 10 -11

2005 -3 3

3. In early 1997, the price of Brent Crude was well above $20 per barrel andanalysts were predicting that the market for crude oil would remain buoyant.In March 1998, the price of Brent Crude fell below $13 per barrel. Thismarket, which is so important to the petroleum industry, had once moreproved to be difficult to interpret.

Figure 3 is a plot of representative oil prices from the North Sea, NorthAmerica and the Middle East starting in 1976. These are average annual datafor important marker crudes in these areas.

(a) Explain why there is a global market for crude oil which causes crude pricesto vary generally as a group.

[2]

(b) Describe the factors which may result in price differentials between differentcrude oils at a common point in time.

[4]

(c) Calculate the real proportional loss in value represented by the decline in priceby the North Sea Marker between 1980 and 1997.[Note that precise data is available from the Economic Tables]

What has been the resultant impact on the industry over this period?[6]

(d) With reference to a simple market model, discuss the factors which maycontribute to oil price variation and identify those factors which may beimportant in determining the direction of price movement over the next fewmonths and years.

[8]

FIGURE 3:- CRUDE OIL PRICES [$/bbl]

0

5

10

15

20

25

30

35

40

80 85 90 95

UK MarkerME MarkerUSA Marker

4. Jatoil, an experienced exploration company, has recently decided to consideropportunities onshore UK. It has identified a number of explorationprospects which are currently on the market. In each case, existing licenceholders have concluded preliminary geophysical investigations and are nowseeking to sell out or to make a farm-in arrangement including a substantialcontribution towards the cost of drilling the first well.

Jatoil has arranged for geophysical data to be analysed by its own team ofspecialists and has compiled relevant information. This is summarised in Table4.

(a) The given data includes “probability of success” for each prospect.What information may be used as a basis for deriving a value for “probabilityof success”?

What factors might contribute to the accuracy of this estimate?[5]

(b) Jatoil is prepared to use expected value criterion for this type of investmentdecision.

Determine which of these prospects would be acceptable investments.[6]

(c) Jatoil is a small company with limited financial resources.

Advise with regard to a suitable criterion for ranking these prospects and useit to put them in rank order.

[3]

(d) Jatoil has decided to purchase an equity stake in all of the prospects whichmeet the screening criterion used in (b) above.

What is the probability that at least one of these prospects is successful?[2]

(e) 100% of equity in Gamma is available.

What might be the advantages / disadvantages of having 100% equity in anexploration prospect?

[4]

TABLE 4:- JATOIL EXPLORATION PROSPECTS

Alpha Beta Gamma Delta

Mean Reserves 20 55 10 5

[mmbbls]

Development NPV 30 100 15 10

[£millions @15%]

Probability of Success 0.10 0.07 0.15 0.18

[Geological assessment]

Equity Available 0.30 0.25 1.00 0.50

[Proportion of Total]

Cost to Jatoil 0.50 1.50 2.00 1.00

[£ millions]

[Includes cost of Well 1]

5. Riccarton Oil Company Ltd [RICOCO] is expanding into the domestic gasmarket in South East Scotland and is looking to increase its supply of gas fromexisting contracts in the near future. In the longer term, it will negotiate newcontracts to meet the demand from new customers.

RICOCO’s main source of supply at present is The Dunfermline EnergyCompany [DECO], which is the operator of a number of medium and small gasfields in the Central Basin of the North Sea. These include the “C” Fieldscluster of Cliff, Cooper and Cowan which link via the Cliff Alpha platforminto the Central Union Pipeline System [CUPS]. Most of this gas is soldunder a series of medium to long term contracts.

RICOCO has asked DECO to consider modifying its supply contract for the“C” cluster, the objective being to increase average production levels to 400million cubic feet per day during 2000, 2001 and 2002. This would result in arapid decline in production rates thereafter.

RICOCO currently pays £1.50 per MCF [thousand cubic feet] of gas deliveredto its terminal and has indicated that it would be prepared to increase this to£1.55 per MCF to secure the higher level of production. These are 1998prices and the contract includes an escalation clause which ensures that theprice of gas is maintained in real terms.

DECO has recently completed a study which has indicated that the reservoirsare capable of performing as required by RICOCO if an additional compressoris installed. Existing and proposed new rates of production are presented inTable 5.

(a) Calculate the maximum amount that RICOCO can afford to pay for thecompressor and its installation. and investigate the sensitivity of this value todiscount rate.

Use the following assumptions and any others you consider to beappropriate:-

The compressor is manufactured and installed during 1999.No significant loss of production occurs during installation.System Opex is increased by £3 million (1998 prices) per year.All exported gas incurs a tariff charge of £0.50 per MCF.Sufficient pipeline capacity is available for the increased production.

[15]

(b) Explain why it is normally desirable to include a price escalation clause in agas sales contract and describe a typical escalation formula.

[5]

TABLE 5:- "C" CLUSTER PRODUCTION

Production

[10^6 scfd]

Current New

93 54

94 230

95 392

96 412

97 456

98 476

99 410

00 350 400

01 296 400

02 260 400

03 230 300

04 208 150

05 186 120

06 164 100

07 140 85

08 116 70

09 80 50

10 54 30

6. The recent controversy regarding the disposal of Brent Spar has brought intoacute focus the problem of field decommissioning or abandonment. In thisregard, it is sobering to realise that some of the large concrete gravitystructures in the North Sea are more than 5 times the mass of the Spar and arefirmly stuck to the sea bed. They will present the Industry with significantlygreater technical and economic challenges.

Information is provided in Table 6 for the Heather Field.This data may be used in support of answers to the questions below.

(a) When planning a field development, how important is it, in general economicterms, for the participants to define the timing of abandonment?

[2]

(b) Briefly describe the formal procedures which the Operator must follow beforeterminating petroleum production from a UK field.

[2]

(c) What is the first sign that a project may be approaching the end of itseconomic life?

[2]

(d) Lease finance is a popular method of providing floating production facilities,as for example the Foinaven FPSO, West of Shetland.

How does the payment scheduling for lease finance impact on the timing ofproject abandonment?

[4]

(e) Review the factors which should be considered by the Operator before/whileplanning for abandonment.

[10]

TABLE 6:- HEATHER CASH FLOWS [£ Money of the Day][Abandonment assumed in 1998]

Oil Revenue Royalty Taxes Capex Opex000bopd £ 10^6 mod 12.50%

75 1876 5677 8178 3 8 65 479 17 60 40 1780 14 76 22 1781 25 168 15 3 29 2282 34 229 22 17 27 2683 27 194 18 44 20 3084 25 197 18 63 15 3485 23 179 16 56 4 3686 20 73 5 46 1 3387 19 75 7 12 5 2588 15 45 4 12 5 2089 12 48 4 5 11 2090 11 52 4 6 4 2291 10 42 3 7 2392 9 36 2 3 2693 9 35 2 2 2694 8 28 2 2 2295 7 26 2 1 2096 7 34 3 1 2097 6 26 2 4 2098 4 18 1 1 10 1599 -3 4000 -2

ANNUAL OPERATING EXPENDITURE [£ millions]

Platform Operation 15.0Oil Disposal[part ownwership of Ninian System] 3.0Insurance 1.3Miscellaneous 0.7

Total 20.0

7. The Cash Flow Method is universally applied to the evaluation of majorinvestment projects.

(a) Explain the concept of the "Cash Flow Method".[4]

(b) Identify (with explanation) which of the following are not Cash Flows:-

Oil RevenueCapital Expenditure(PRT) Oil AllowanceDepreciationPipeline TariffDebt InterestInterest During Construction (IDC)Present Value

[4]

(c) What are the differences between Capital Expenditure (Capex) and OperatingExpenditure (Opex)?

[3]

(d) What factors might be taken into account in setting the length of each timeperiod within a cash flow model?

[2]

(e) What is the significance of the "Aggregation Point" for cash flows within asingle time period?

[2]

(f) Compute a series of Discount Factors appropriate to the following:-

Model Periods:- Calendar yearsAnnual Discount Rate:- 12%Discount Origin:- Beginning of first year of projectAggregation Point:- Mid point of each year

[5]

8. BP has recently decommissioned the Donan Field and as a result, the Seilleanproduction vessel is available for service on other fields.Seillean is a Single Well Oil Production System [SWOPS] which is a tanker-shaped vessel with a moonpool. It is capable of latching onto speciallydesigned, subsea wellheads and producing up to 300,000 barrels of crude intoself-contained storage, at a maximum rate of 17,500 barrels per day. Afterdelivery to a convenient terminal, this production/transportation cycle isrepeated.

Murrayfield Exploration and Development Ltd [MEAD] is considering the useof SWOPS technology to exploit a series of small remote reservoirs, Anemone,Bluebell and Crocus, none of which would be able to support the cost ofconventional facilities. Anemone has been fully appraised and hasrecoverable reserves of around 18 million barrels (based on the assumptionthat recovery would be by means of the SWOPS technology). The other tworeservoirs are of similar size and are expected to contain combined reserves of36 million barrels recoverable.

(a) Derive a simple production profile for the Anemone reservoir based on theassumption that the system will produce at a constant rate over the life of thefield, constrained only by the operating characteristics of the SWOPS facility.

Assume that the Field produces at a constant average rate of 16,500 barrelsper day, when the production vessel is attached.

Further assume that the round trip from these fields to terminal and backwould take, on average, 12 days.

[Note that this simple model assumes that once production falls below16,500 bopd, the field is abandoned. A more detailed analysis would considerwhether this was economically justified.]

[4]

(b) Use the Annual Capital Charge method to determine whether MEAD shouldconsider purchasing the Seillean vessel, in the current economic situation,based on the assumptions included in Table 8 below.

MEAD expects a real return of 12% from this type of investment.[8]

(c) Extend this model further to include the Bluebell and Crocus reservoirs,assuming that all three reservoirs have similar reservoir and development costcharacteristics. Further assume that development of Bluebell Field takesplace in the final year of Anemone Field production and that Crocus Fielddevelopment takes place in the final year of Bluebell field production. TheSWOPS vessel then transfers immediately from one field to the other.

Determine whether the development of three fields together would represent abetter investment.

[6]

(d) An alternative development strategy would be to install the wells on all threefields from the beginning and plan for the Seillean to visit each field inrotation.

Comment on the economic implications of such a plan.[note that no calculation is required.]

[2]

TABLE 8:- Anemone Field Economic Information (£1998)

Assume Seillean purchase and field development in 1998

Capex:- SWOPS Vessel £100 mWells & wellheads:- £30 mAbandonment £8 m

Field Opex:- £15 m per year

9. Write notes on the following topicsAll have equal value.

(a) Book value method

(b) Choice of discount rate

(c) [PRT] Oil Allowance

(d) Spider diagram

(e) Utility or preference theory

[20]

End of Paper

Course:- 28117Class:- 289083

HERIOT-WATT UNIVERSITYDEPARTMENT OF PETROLEUM ENGINEERING

Examination for the Degree ofMEng in Petroleum Engineering

Petroleum Project Economics

Monday 19th April 199910.30 - 14.30

NOTES FOR CANDIDATES

1. This is a Closed Book Examination.

2. 15 minutes reading time is provided from 10.15 - 10.30.

3. Examination Papers will be marked anonymously. See separateinstructions for completion of Script Book front covers and attachment ofloose pages. Do not write your name on any loose pages which aresubmitted as part of your answer.

4. This Paper consists of 2 Sections:- A and B.

5. Section A:- Attempt all QuestionsSections B:- Attempt 3 numbered Questions from 5

6. Section A:- 25% of marksSection B:- 75% of marks

Marks for Questions are indicated in brackets

7. This Examination represents 80% of the Class assessment.

8 State clearly any assumptions used and intermediate calculations made innumerical questions. No marks can be given for an incorrect answer ifthe method of calculation is not presented.

SECTION A

Answer all 10 questions in this section4 marks are allocated to each questionUse text, short notes, formulae and/or diagrams as appropriate

A1. Explain the basic principles of the “Book Value Method”.

Identify some of the problems you might encounter in relating the bookvalue of a petroleum company to its market value.

A2. Why is it widely accepted that a pound received today is more valuablethan a pound received at some time in the future?

What specific factors should be considered in determining the relativevalues of equal cash flows which are received at different points in time?

A3. Differentiate between project “screening” and “ranking”.

Review the various reasons why a company may decide to rank itsinvestment opportunities.

A4. Describe the stages in the calculation of Net Present Value [NPV].

Review some of the important applications of project NPV.

A5. In the context of UK Corporation Tax assessment, explain the differencebetween “Stand alone” and “Consolidated”.

Which procedure is likely to generate more favourable project economics?

A6. Explain the concept of “Expected Value”.

Under what circumstances might a company or an individual make aninvestment in the full knowledge that its expected value was negative?

A7. Explain the process of Field “Unitisation”.

What benefits can arise from unitisation?What problems may be encountered by the participants?

A8. A producing company has a consignment of crude oil to sell.

What factors may be pertinent to the pricing of this oil?

A9. The cost of abandonment may represent a significant negative cash flow atthe end of a project’s life.

Explain carefully how this can introduce an error into the calculation ofproject Internal Rate of Return.

What impact is abandonment cost likely to have on the timing ofabandonment?

A10. The loss of Piper Alpha in 1988 was the worst accident to have occurredin the history of North Sea oil and gas development.

Review the various ways in which this disaster has affected the industry.

SECTION B

Answer 3 numbered questionsEach numbered question is allocated 40 marksMarks for each sub-question are indicated in [brackets]

B11. The Cash Flow Method is universally applied to the evaluation of majorinvestment projects.

(a) Describe the "Cash Flow Method" and explain carefully how to identifywhich cash flows are relevant to a specific investment decision.

[8]

(b) Identify (with explanation) which of the following are not Cash Flows:-

Oil RevenueCapital ExpenditureDollar/Pound Exchange RateDepreciationPipeline TariffDebt InterestInterest During Construction (IDC)Present Value

[8]

(c) Capital Expenditure (Capex) and Operating Expenditure (Opex) areimportant forms of negative cash flow. Define each term and identify theirsimilarities and differences.

[8]

(d) A cash flow model is subdivided into a number of time periods of equallength. What factors might be taken into account in setting the length ofthese time periods and what is the significance of the "Aggregation Point"for cash flows within a single time period?

[4]

(e) Compute a series of five Discount Factors appropriate to the following:-

Model Periods:- Calendar yearsAnnual Discount Rate:- 12%Discount Origin:- Beginning of first year of projectAggregation Point:- Mid point of each year

[4]

(f) A cash flow model may be constructed in “Real” or “Money of the Day”terms. Explain the advantages and disadvantages of each.

[8]

B12. Oasis Gas Inc is Operator for a consortium which plans to export LNGfrom the Arab Gulf to the Far East. One of the potential customers isNippon Power, a large electricity utility in Japan. Nippon requires 300million mcf [1mcf = 103 scf] per year and is negotiating a price withOasis.

Preliminary economic information is included in Table 12

(a) Calculate and discuss the price that Oasis would have to charge in order togenerate a real 8 percent return on capital. Justify any assumptions.

[28]

(b) Oasis proposes to include a “floor price” and a “price escalation formula”in this contract. Define or explain these terms and explain their purpose inthe context of a gas supply contract.

[8]

(c) In general, what other factors may be specified in gas sales contracts?[4]

TABLE 12:- OASIS GAS PROJECT, ECONOMIC DETAILS

A:- General Data

System output 300 * 106 mcf / yrConstruction start up 2000Production start up 2003Project productive life 20 years

B:- Capex [$1999]

Liquefaction plant $1800m over 3 yearsTankers $2600m over 2 yearsGasification plant $300m over 2 years

C:- Annual Opex [$1999]

All equipment [excludes gas consumption] 4% of Capex

D:- Purchase of Gas

Oasis has identified a secure source of gas and has negotiated to have thisdelivered to the liquefaction site for $0.60 per mcf. The price is in 1999terms and will be held constant in real terms.

Note that the system “loses” 15% of input gas, mainly for liquefactionplant energy, but also as a result of “boil off” during transit. Additionalgas must be purchased to ensure delivery of the contracted volume.

B13. Gadwall is a small discovery located in Block 21/19, 14 kilometres East ofthe Kittiwake platform. Recoverable reserves are estimated to be9 million barrels of oil and 7 billion cubic feet of gas.

The block is operated by Shell and the prospect is currently beingconsidered for development. One possibility is a subsea tieback to theKittiwake facility using the adjacent Mallard multiphase pipeline which willhave spare capacity. Two wells are required, a producer and an injector.The discovery well has been suspended for recompletion.

This plan includes exporting oil via Kittiwake offshore loading facility andexporting gas via the Fulmar pipeline to St Fergus. If an early decision istaken, the second well could be drilled later this year, with productionstarting in 2000.

(a) Using the information above and the additional data provided in Table 13,determine whether the Gadwall development is economically viable, aftertax. Justify any additional assumptions which are used.

[40]

TABLE 13:- GADWALL ECONOMIC ASSUMPTIONS

A:- Capex £ mod

Wells Subsea Platform Abandon1996 91999 16 92000 9 12005 5

B:- Opex £ 1999

Fixed annual £3 millionUse of Mallard/Kittiwake facilities £1 per barrelUse of Fulmar gas pipeline £0.5 per mcf [103 scf]

C:- Production

Oil [bopd] Gas [mcfd]2000 10000 70002001 7000 70002002 5000 30002003 2000 10002004 1000 0

D:- Taxation

Corporation Tax @ 31%

B14. Homer Oil Ltd is Operator of the Elysian Fields (A and B) which havebeen producing since 1990, but are now in decline. Company geologistssuspect that drainage may be ineffective from the Western edge of themain “A” reservoir structure, where permeability and net to gross areknown to be lower. They have proposed drilling an additional well in thatarea to speed up production and, hopefully, to improve recovery.

Homer recently carried out a simulation study to investigate the impact ofan additional well on field productivity and these results are now available[Table 14]. Based on conservative assumptions, the study indicates thatthe proposed well would accelerate production by 1 year and would add500,000 barrels to recoverable reserves.

The well could be drilled during 1999 at a cost of $7 million andcompleted and tied back to existing facilities for a further $8 million.

The Company currently uses a price projection of $13 per barrel, constantin real terms and has estimated a variable Operating Expenditure of $1 perbarrel, which is predominantly the tariff charge associated with exportingproduced oil to the Piraeus Terminal.

Incremental costs and benefits are difficult to estimate at the end of theproject. Early termination reduces operating expenditure, but bringsforward abandonment expenditure. A benefit of $7.5 million in 2011 is tobe assumed for this analysis.

(a) Advise the Company of the range of discount rates for which the projectmay be viable.

[20]

(b) How would you derive an Internal Rate of Return for this incrementalinvestment?

[4]

(c) What impact on project economics would you expect from the following:-

Lower constant oil price assumptionOil price rising over timeReduced financial benefit from early terminationIncrease in predicted rates of incremental production

[16]

TABLE 14:- ELYSIAN PRODUCTION PROFILES

Current Accelerated

Profile Profile

bopd bopd

1999 30000 30000

2000 25000 25500

2001 21500 23000

2002 18000 20000

2003 15500 17500

2004 13000 15000

2005 11000 12500

2006 9500 9000

2007 8000 7250

2008 7000 6000

2009 6000 4500

2010 4500 0

B15. Investment in petroleum projects is subject to considerable risk, asexemplified by variation in oil price [Figure 15].

(a) Explain “investment risk”.[4]

(b) Review the various sources of risk for typical petroleum projects.[16]

(c) Identify the methods which companies can use to reduce risk.[20]