Inputs required to generate Project Economics are divided into four categories. The user must create at least one data set in each category.
Select Inputs from the Project Economics menu to create or edit these data sets.
The purpose of dividing inputs into four categories is flexibility and user convenience. For example, projects competing for investment are typically compared to one another under using a common petroleum price forecast. Having separate petroleum price input data set(s) facilitates this process and ensures consistency. As another example, negotiators of PSAs often need to analyze the effect of changes in fiscal terms (no other inputs should be changed). To do this create two fiscal data sets, run each of them and compare the results.
User help is available for each data input. When you position your mouse over the input label a dialog box appears with a more detailed description of the input and/or a description of how that input effects the economic results. Finally, warning messages will pop up if you enter input values that are not logically possible (e.g., negative costs).
When you create a new data set the form is pre-populated with data. These values are merely illustrative. They also facilitate creating a data set for educational purposes -- by accepting default values.
CAPEX and Production forecasts can be either populated or generated using a variety of approaches -- different approaches for different uses of the model. For a preliminary evaluation/negotiation the most appropriate method might be to input a recoverable reserves level, a depletion rate and aggregate CAPEX (e.g., $20/Bbl of recoverable reserves). To proceed this way select Simple Method from the CAPEX & Production menu.
Negotiation of terms for a specific project is likely to require a more precise forecast of CAPEX and production. Technical users (e.g., geologists and engineers) often use their own calculation tools to generate these forecasts. Such users can generate an Excel spreadsheet with summary results (e.g., annual data for exploration CAPEX, Development CAPEX, and Production) and upload that Excel file. To do this select Import Data Method from the CAPEX & Production menu. Alternatively, the model also provides a module that technical users might find adequate to generate CAPEX and Production forecasts in some cases (labeled the "Development Plan Method").
The Development Plan Method generates CAPEX and Production forecasts from three data sets of inputs:
Using three separate input data sets facilitates running scenarios. For example, delaying a project typically doesn't alter the development plan (e.g., the number of wells to be drilled) and may not alter the development cost (e.g., drilling costs in $real). Therefore, timing inputs are allocated to a separate data set. Similarly, a high cost scenario might involve higher drilling costs but not alter the number of wells to be drilled. The Development Cost data set contains inputs like exploration costs and development drilling costs per well. The Development Plan data set contains inputs like recoverable reserves and the maximum number of development wells that can be drilled per year.
Drilling and Production Logic. This remainder of this note provides an overview of the drilling and production simulation logic.
The number of oil [gas] development wells drilled and the timing of drilling activity is determined by:
At present, the model assumes that development drilling expenditures are incurred in the same year that production from the drilled well commences. To the extent that this assumption is incorrect consider grossing up the drilling cost for the time value of money (as a rough compensating adjustment). Oil [gas] development well drilling expenditures begin to occur in the first year of oil [gas] production.
The model simulates a drilling program that increases deliverability to the surface capacity production constraint as quickly as allowed by the maximum drilling rate constraint. Deliverability is determined by the pressure decline model, as follows:
Drilling that would increase daily deliverability above the surface facility capacity constraint is deferred to future years -- until drilling is required to prevent a decline in deliverability below the surface facility capacity constraint. Drilling may also be limited by:
The drilling program described above determines $real drilling costs incurred by year. The $nominal drilling cost in each year is then calculated by applying the inflation rate for capital expenditures (in the Timing input data table).