Petroleum Project Economics Econ210D

Presentation 6

Sensitivity Analysis for Changing VariablesWeek 6 1

Changing Variables

• Economic evaluations are made based on

assumed parameters

• These parameters are likely to change

over life of field

• Such changes would affect the feasibility

of the project2Sensitivity Analysis for Changing

Variables Week 6

Sensitivity Analysis for Changing Variables

• Measuring the effect of changes in key

variables on the economic performance of

an investment.

• Parameters are varied one at a time with

all other variables held constant.

• The effect on NPV is usually measured.3Sensitivity Analysis for Changing

Variables Week 6

Petroleum Project Parameters

Parameter Field EstimateRecoverable Reserves 160 mbo

Field Life 20 yearsOil Price $60

Total CAPEX $500mOPEX per bbl $5

Sensitivity analysis examines the effect of

changes in any one of these parameters on

the economic evaluation of a project. 4Sensitivity Analysis for Changing Variables Week 6

Independent and Control Variables

• The parameters which are changed in the

sensitivity analysis is called the independent

variable.

• The other variables in the sensitivity

analysis which are held constant are called

control variables.5Sensitivity Analysis for Changing

Variables Week 6

Independent and Control Variables

Parameter Field Estimate Sensitivity AnalysisRecoverable Reserves 160 mbo Control

Field Life 20 years ControlOil Price $60 Independent

Total CAPEX $500m ControlOPEX per bbl $5 Control

In this sensitivity analysis, oil price is the

independent variable and all other parameters

are control variables. 6Sensitivity Analysis for Changing Variables Week 6

Sensitivity Analysis of Oil Price

Oil Price

NPV $B

$50 $2.1

$60 $2.9

$70 $3.7

7Sensitivity Analysis for Changing Variables Week 6

Spider Plots• Sensitivity analysis examines “What if”

situations based on changes in one parameter

at a time.

• Spider plots are used to present graphically

several sensitivity analyses

• This helps to give a visualization of the

parameters which has the biggest effect on a

projects profitability.8Sensitivity Analysis for Changing

Variables Week 6

Spider Plots

Change in Independent

Variable

NPV due to change in Independent Variables

Price OPEX CAPEX Reserves

Field Life Tax

-50% 0.0 -2.9 5.8 5.8 8.7 1.5

-25% 1.5 0.0 4.4 4.4 5.8 2.2

0% 2.9 2.9 2.9 2.9 2.9 2.9

25% 4.4 5.8 1.5 1.5 0.0 3.6

50% 5.8 8.7 0.0 0.0 -2.9 4.49Sensitivity Analysis for Changing

Variables Week 6

10Sensitivity Analysis for Changing Variables Week 6

11Sensitivity Analysis for Changing Variables Week 6

Other Independent Variables

• Altered production profiles

• Changes in production start-up date

• Unscheduled shut downs

• Inflation

12Sensitivity Analysis for Changing Variables Week 6

13Sensitivity Analysis for Changing Variables Week 6

Home Work

• Using the data in the following slide,

together with the data from presentation 4

conduct a sensitivity analysis based on the

changes in the slide which follows.

• Use the results to construct a spider plot.14

15

Independent Variable Price OPEX CAPEX

Percentage Change

-50% -2.9 5.8

50% 0 4.4