Economic evaluation

The economic concept of a project concerns as well the upstream stage as the downstream stage:

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  • to optimize a risky budget before launching the project (i.e. exploration phase).
  • to evaluate the profitability (NPV, IRR…) of the project in the case of discovery of an hydrocarbon field.

Budgetary issues- In exploration phase, wells are the most costly and risky, mainly in unexplored areas where the likelihood of success of the well could be less than 10%.

The authority for expenditure (AFE) which is consisting of site preparation, water well, rig rental, bit, coring, logging, testing, casing, cementing,…is escalating from year to year. A bad estimate of AFE amount may result in high actual costs constraining the manager to go over allocated budget.

Right AFE should be estimated by asking for a risk contingency budget account by using the Expected Monetary Value (EMV) technique to translate the geological risk into budget language. In this case, the asked budget is covering the project in case of geological risk occurring.

This key practice, often mistreated by the operators, allows the manager to avoid any over cost swelling the exploration expenses which will have a negative impact on the NPV. The good knowledge of the geological risk and the local market in terms of pricing related to well’s equipments and services is required for a right estimation of the risk contingency budget in order to reduce as low as possible the difference between AFE and actual costs.

Economic issues- NPV & IRR are your green lights for investment’s decision-taking.

A good knowledge of the current local commercial data and information as well as the speculative prospective situation is important to approach the profitability before lunching the investment.

We consider the following data as the main parameters controlling the economy of an upstream project:

  • Recoverable Reserves Volume
  • Oil & gas prices & speculation
  • Rate of inflation of the prices, Capex & Opex
  • Development cost
  • Operating Cost
  • Transport Cost
  • Abandonment Cost
  • Taxes, …

Economic evaluation we provide concerns:
New exploration blocks in early decision-making stage of project as well as the discovered reserves to be developed in the framework of the field development plan (Oil & Gas production profile, NPV profile…)