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The Economics of Upstream Petroleum Project

The Economics of Upstream Petroleum Project

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Published by blubiantara
upstream petroleum project economics royalty tax PSC costs recovery
upstream petroleum project economics royalty tax PSC costs recovery

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Published by: blubiantara on Aug 30, 2010
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07/15/2013

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The Economics of Upstream Petroleum Project
(2009)Benny Lubiantara
1.
 
Introduction
Projects in the upstream petroleum industry are characterized by large capital investment, inaddition to that, there some other factors that make this sector different from other investmentopportunities, such as: time lag between expenditures and revenues, high levels of uncertainty& risk, and of course, most of the projects involve high technology.
2.
 
The Life Cycle of Petroleum Projects
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The phases of typical oil and gas project can be described as follows: Pre LicensingProspecting, Mineral Acquisition/Contracting, Exploration, Appraisal, Development,Production, and Closure.
 
Pre Licensing Prospecting
Pre-license prospecting typically involves the geological evaluation of relatively largeareas before acquisition of any petroleum rights.
 
Mineral Acquisition/Contracting
Mineral interest acquisition involves the activities related to obtaining the mineralrights to explore for, develop and produce oil or gas in a particular area. Typically theoil and gas company receives a mineral interest if the negotiation is successful. Amineral interest is an interest in a property that gives the owner the right to share in theproceeds from oil or gas produced.
1
Wright, Gallun,
International Petroleum Accounting
, 2005, p.8 -18
 
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Exploration
Exploration is detailed examination of an area for which a mineral interest has beenacquired. Generally, the geographical area has demonstrated sufficient potential to justify further exploration to determine whether oil and gas are present in commercialquantities.
 
Appraisal
Appraisal phase involves confirming and evaluating the presence and extent of reserves that have been indicated by previous Geological and Geophysical testing andexploratory drilling. Exploratory wells may have found reserves; however, appraisal isnecessary in order to justify the capital expenditure related to the development andproduction of the reserves
 – 
in other words confirming that the reserves arecommercial.
 
Development
This phase involves undertaking the steps necessary to actually achieve commercialproduction. Typically this have involves: drilling additional wells necessary toproduce the commercial reserves, constructing platforms and gas treatment plans,constructing equipment and facilities necessary for getting the oil and gas to thesurface and for handling, storing, and processing or treating the oil and gas,constructing pipelines, storage facilities and waste disposal system.
 
Production
The production phase involves extracting the oil and gas from the reservoir andtreating the oil and gas in order to assure that it meets marketing standards.
 
Closure
At the end of the productive life of an oil and gas field, the site typically must berestored to its pre-existing condition. Accordingly, the closure phase includes pluggingand abandoning wells, removing equipment and facilities, rehabilitating and restoringthe operational site and abandoning the site.
 
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3.
 
Basic Concept of Oil and Gas Fields Development
The purpose of this section is to briefly describe the basic concept of field development. Planof Development (POD) is the document submitted by the International Oil Companies to theauthorized government body for their approval. The POD documents provide a brief description of the technical information on which the development is based.Conceptually, oilfield (or gas field) plan of development cover aspects, such as: reserves, fieldscenario, drilling, production forecast, field facilities and abandonment/site restoration asshown in figure 1.Figure 1. Elements of Oil Plan of Development
3.1. Reserves
Reserves are defined as those quantities of petroleum which are anticipated to becommercially recovered from known accumulations from a given date forward. According toSociety of Petroleum Engineers (SPE)
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, reserves can be divided into three categories, namely:proved, probable and possible reserves.
2
SPE Guidelines for the Evaluation of Petroleum Reserves and Resources, 2001

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