Post on 19-Feb-2021
1
Economic Modeling
Dr. Alfred KjemperudThe Bridge Group AS
22
Investment Decisions• Petroleum investments are
– capital intensive – irreversible – high risk/uncertainty
• Investment decisions today are only unfolded in the uncertain future for both company and government
33
Modeling = Predicting
• Petroleum project modelling is based on – knowledge of fundamental elements in
technology and economics– empiric data– and a bit of artistry
44
Warning• All modeling is imperfect.
– It is always a simplification of reality– Depends on quality of input
• The challenge is to assess the weaknesses and discover flaws
55
Activities and cash flow
Income
Time
Government
Pre-license Exploration Development Production AbandonmentProduction
Rehab.
Con
trac
t aw
ard
PDO
Costs
Lead Time
66
Modeling
• Production curve• Oil/gas price• Capex• Opex• Fiscal regime• Discount rate
77
Production curve
Build-up
Plateau
DeclineVolume
CutoffTime
88
Factors determining production
• No of wells• Plateau factor (%)• Production rate per well• Plateau production rate• Remaining oil/gas at start decline• Decline rate (%)• Cut off rate
99
Oil ProductionOil Production
0.0
50.0
100.0
150.0
200.0
250.0
300.0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31
Year
Thou
sand
bbl
/yea
r
Oil [Thousand bbl/d]Assoc. Gas [Thousand o.e./d]
1010
Gas ProductionGas Production
0.0
500.0
1000.0
1500.0
2000.0
2500.0
3000.0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31
Year
Gas
(Mill
ion
scf/d
ay)
Con
dens
ate
(Tho
usan
d bb
l/d)
Non Assoc. Gas [Million scf/d]Condensate [Thousand bbl/d
1111
Statfjord Oil - NorwayOil Production - Statfjord, Norway560 million Sm3 (3520 Million bbl)
23 %
66 %
0
5
10
15
20
25
30
35
40
200220012000199919981997199619951994199319921991199019891988198719861985198419831982198119801979
Years
Mill
ion
Sm3
0 %
10 %
20 %
30 %
40 %
50 %
60 %
70 %
80 %
90 %
100 %
Oil Production
P/R percentage
1212
Ula oil - NorwayOil Production - Ula, Norway
80 million Sm3 (503 Million bbl)
53.7 %
35.1 %
0
1
2
3
4
5
6
7
8
20022001200019991998199719961995199419931992199119901989198819871986
Years
Mill
ion
Sm3
0.0 %
10.0 %
20.0 %
30.0 %
40.0 %
50.0 %
60.0 %
70.0 %
80.0 %
90.0 %
Oil Production
P/R percentage
1313
Oseberg Oil - NorwayOil Production - Oseberg Field, Norway
350 million Sm3 (2200 million bbl)
39.2 %
70.5 %
0
5
10
15
20
25
30
35
2001200019991998199719961995199419931992199119901989198819871986
Years
Mill
ion
Sm3
0.0 %
10.0 %
20.0 %
30.0 %
40.0 %
50.0 %
60.0 %
70.0 %
80.0 %
90.0 %
100.0 %
Oil Production
P/R percentage
1414
Frigg Gas - NorwayGas Production - Frigg Field, Norway
116 billion Sm3 (4.1 TCF)
63.9 %
29.8 %
0
2
4
6
8
10
12
20022001200019991998199719961995199419931992199119901989198819871986198519841983198219811980197919781977
Years
Mill
ion
Sm3
0
0.2
0.4
0.6
0.8
1
1.2
Gasl Production
P/R percentage
1515
Expenditures = Cost• Capital expenditure
– Wells– Constructions - Facilities– Pipelines
• Operating expenditures– The cost of running the operations
• Fixed Opex• Variable Opex
1616
Capex and OpexCapex and Opex
0
50
100
150
200
250
300
350
400
450
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
Years
Mill
ion
USD
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
TOTAL CAPEX [Million USD, inflated]Varible OpexTOTAL OPEX [Million USD, inflated]
1717
Well cost - Asia
bbl Sm3Expl.
Well cost Test
Appraisal no. of wells Well cost
Duration (years)
Averages, Capex
(USD/bbl)Capex
(USD/Sm3)First
oilYearsField life (years)
Averages, Opex
(USD/bbl)Opex
(USD/Sm3)10 1.6 6.9 1.14 1 6.7 1.8 5.16 32.46 3.8 6.4 6.72 42.325 4.0 7.43 1.31 1.43 7.29 1.83 4.34 27.27 4.17 6.86 5.30 33.3450 7.9 7.43 1.31 2.14 7.29 2.17 3.68 23.13 5.17 9.00 4.93 30.99
125 19.9 7.43 1.31 2.29 7.29 2.83 2.93 18.43 6.33 13.00 4.41 27.76250 39.7 7.43 1.31 3.14 7.29 3.67 2.51 15.79 7.67 16.86 3.89 24.47500 79.5 7.43 1.31 3.86 7.29 4.17 2.09 13.17 8.33 19.57 3.47 21.84
160.00 25.44 7.34 1.29 2.31 7.19 2.74 3.45 21.71 5.91 11.95 4.79 30.12
AveragesField size Exploration Appraisal Development/operation
1818
Basic assumptions• Start Year• Oil Price
– Starting value– Escalation– Model
• Inflation• Discount rate and year• Depreciation rules
1919
Oil prices through time
?
2020
Model check• Several check points must be built into any
model– Royalty % per year– Profit share % per year– R-factor calculation– Production plot– Capex and Opex plot– Depreciation plot
2121
Checklist 2• BASIC ASSUMPTIONS Rule of Thumb• Capex/bbl 3-5 usd• Capex as % of Gross Revenue 10-20%• Opex/bbl 3-5 usd• Opex/peak year as % of total Capex 4-8%
Economic ModelingInvestment DecisionsModeling = PredictingWarningModelingProduction curveFactors determining productionOil ProductionGas ProductionStatfjord Oil - NorwayUla oil - NorwayOseberg Oil - NorwayFrigg Gas - NorwayExpenditures = CostCapex and OpexWell cost - AsiaBasic assumptionsOil prices through timeModel checkChecklist 2