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(FCEE)

UNIVERSITI TEKNOLOGI MALAYSIA

SKPP3113

EVALUATION & MANAGEMENT OF PETROLEUM

PROJECTS

Name

A13KP0033

WAN MOHD FIKRRY BIN ABDULLAH

A13KP0132

GAJENDRAN A/L RAMASAMY

A13KP0031

HEMAKKESHA A/L ARUMUGAM

A13KP0032

Submission Date

Section

SN 02

Lecturers Name

Marks (%)

1|Page

Table of Content

LIST OF FIGURES..3

INTRODUCTION4

BACKGROUND OF PROJECT..5-7

1ST FIELD DEVELOPMENT PROJECT8-11

i.

ii.

Projects NCF Built Pipeline

i.

ii.

Projects NCF Shared Pipeline

DECISION MAKING15

CONCLUSION..........16

REFERENCES...17

List of figures

2|Page

Figure 2 : The graph of Production Rate against Year

Figure 3 :Net cash flow Profile of Contractor for Shared Pipeline

Figure 4 : The graph of Net present value against Discount rate

Figure 5 : Net cash Flow Profile of Project for Shared Pipeline

Figure 6 : The graph of Net present value against Discount rate

Figure 7 : The graph of Production Rate against Year

Figure 8 : Net Cash Flow Profile of Contractor for FPSO

Figure 9 : The graph of Net present value against Discount rate

Figure 10 : Net Cash Flow of Project for FPSO

Figure 11 : The graph of Net present value against Discount rate

3|Page

INTRODUCTION

This Evaluation and Management project is the study of economoic evaluation or the

operation of BETA PSC Block . Other than that , the purpose of this evaluation being carried

out is for Field Development. Besides, the objectives of the economic evaluation are to secure

new petroleum acreage by bidding the National Oil Companies and also for sale and

exchange of petroleum assets. Next, its used for unitization of an agreement between

companies, contractors and also the host government.

By doing this project work , we have a better understanding on the economical effects

due to our choices . Besides, twe would be able to select he most optimal option in oil&gas

industry by comparing the options and its economical effects .

The parameters of the projects need to consider and being compared with the all types

of Field Development Projects before making a decision for the most preferable method.

Example of parameters that involved in the economic evaluation projects are the Cash Flow

diagram, Payback period, Breakeven, Net present Value (NPV) and also the Internal Rate of

Return (IRR).

BACKGROUND OF PROJECTS

The field area of the economic evaluation is located at the offshore Terrenganu in

Penisular Malaysia near South Chinese Ocean. The first oil discovery at Terrenganu is

Bertam field developed by Lundin Petroleum. Below are the data provided for the field of

interest for operating process.

Drilling results showed that the prospect contain of certain of expected oil STOIIP of the field

area:

4|Page

PROBABILITY

P90

P50

P10

STOIIP (MMSTB)

330

440

570

1. Oil price 2016

= USD$45.00/bbl

2. Gas price 2016

= USD$3.5/MMBTU (LNG base price)

3. Oil Price Escalation = 5% per year

4. Gas price escalation = 5% per year

5. Cost Escalation

= 5% per year

6. Exchange rate

= RM4.0 to USD$1.00

7. Oil production

@ Peak rate per well = 4000 STB/d

8. Oil peak rate

= 4% of STOIIP per year (5 years)

9. Oil throughput fee of USD$1/bbl is charged

10. Oil and gas (if any) are exported

11. Solution Gas Oil Ratio 780 SCF/STB

12. Start production in 2022

To find the number of wells during the peak rate of oil production

Q max = 4% x 330 MMSTB x 5 years

= 66 MMSTB year

Total number of wells at peak rate =

66 MMSTB

4000 365 days 5 years

= 9.04

= 9 well

1050412 E, 4 41 24 N

5|Page

1050412E, 44124N

For this project of economic evaluation is under 1985 PSC arrangement negligible the

joint venture element. Our group suggested three scenariosfor the production which is

suitable for the given coordinate . . The coordinate given was , 1135060 E, 4 51 36 N, it

6|Page

is located offshore of Terrenganu . The given coorcinated is about 183.47 km from Kemaman

Supply Base (KSB) .

We have came up with several ideas and solution for field development project . For

our group, basically we managed to evaluate three different ways of operating planning.

Firstly, the company built up their own pipeline from the field of interest to Kemaman Supply

Base for 183.47 km for length. Apart from that, the second scenarios is 33.47km built up oil

pipeline which is owned by the company and rent about 150km of oil pipeline in . Therefore

the total length of the oil pipeline for second scenarios is about 183.47km. Lastly, we were

planning of renting a Floating Production Storage Offloading (FPSO) which is really

expensive.

This project should be evaluated based on several of economic indicator in order to

assess the feasibility for project expansion or acceleration. The example of economic

indicators are maximum cash sink, breakeven, payback period, economic limit, economic

life, ultimate cash flow, profit investment ratio (PIR), net present value (NPV), and lastly the

internal rate of return (IRR).

In order to identify the most efficient method for the field development project, we

have to evaluate the basic data given and compare the value of Internal Rate of Return of

each idea.

7|Page

Type : Oil Pipeline

Details : 1) 150 km in length built up own pipeline

2) 33.47km rent from oil pipeline

3) Rental per day per km = $3000

Development

Cost

4 leg Jacket

Topside

Topside & CPP

Pipeline

9 well

Total Cost

RM

480,000,000.00

720,000,000.00

920,000,000.00

60,000,000.00

720,000,000.00

2,900,000,000.00

40,000.00

35,000.00

30,000.00

25,000.00

20,000.00

15,000.00

10,000.00

5,000.00

0.00

Year

8|Page

3,000,000,000.00

2,000,000,000.00

1,000,000,000.00

0.00

Net C ash Flow (MYR)

(1,000,000,000.00)

(2,000,000,000.00)

(3,000,000,000.00)

(4,000,000,000.00)

Year

Net Cas h Flow

Discount Rates

5%

10%

20%

30%

40%

50%

60%

70%

9|Page

Net Present

Value(NPV)

$498,038,726.86

(RM12,367,569.96)

(RM398,937,286.21)

(RM454,895,323.62)

(RM415,065,478.00)

(RM353,976,620.41)

(RM294,867,578.62)

(RM244,023,101.68)

RM100,000,000.00

RM0.00

0.1

(RM100,000,000.00)

0.2

0.3

0.4

0.5

0.6

(RM200,000,000.00)

(RM300,000,000.00)

(RM400,000,000.00)

(RM500,000,000.00)

From the graph above, we were obtained the value of Internal Rate of Return which as shown below.

9.83117103%

Internal Rate of Return (IRR)

at NPV=0

12,000,000,000.00

10,000,000,000.00

8,000,000,000.00

6,000,000,000.00

4,000,000,000.00

2,000,000,000.00

0.00

(2,000,000,000.00)

(4,000,000,000.00)

Year

NCF after tax

Discount

Rates

10 | P a g e

Net Present

Value(NPV)

RM8,650,485,096.

1%

97

RM5,273,082,891.

5%

90

10% RM2,850,598,649.

0.7

62

RM756,059,937.2

20%

8

30% RM70,757,424.37

(RM152,606,663.

40%

81)

RM12,000,000,000.00

RM10,000,000,000.00

RM8,000,000,000.00

RM6,000,000,000.00

RM4,000,000,000.00

RM2,000,000,000.00

RM0.00

0.01

(RM2,000,000,000.00)

0.05

0.1

0.2

Discount Rates

From the graph above, we were obtained the value of Internal Rate of Return which as shown below.

32.116170%

Internal Rate of Return (IRR)

at NPV=0

Type : Floating Production Storage Offloading (FPSO)

Details : 1) Rent

2) $ 345,000 per day

Development

Cost

4 leg Jacket

Topside

Topside & CPP

FPSO

9 well

Total Cost

RM

480,000,000.00

720,000,000.00

920,000,000.00

503,700,000.00

720,000,000.00

3,343,700,000.00

11 | P a g e

0.3

0.4

40,000.00

35,000.00

30,000.00

25,000.00

20,000.00

15,000.00

10,000.00

5,000.00

0.00

Year

12 | P a g e

3,000,000,000.00

2,000,000,000.00

1,000,000,000.00

0.00

(1,000,000,000.00)

(2,000,000,000.00)

(3,000,000,000.00)

(4,000,000,000.00)

Net Cash Flow

Net Present Value

Discount Rates

(NPV)

1%

RM195,037,500.14

5%

(RM17,644,301.11)

10%

(RM252,176,667.63)

20%

(RM469,589,714.99)

30%

(RM483,982,486.41)

40%

(RM428,703,006.54)

50%

(RM359,825,556.13)

60%

(RM296,201,485.68)

70%

(RM242,624,333.72)

RM200,000,000.00

RM0.00

(RM200,000,000.00)

(RM400,000,000.00)

(RM600,000,000.00)

From the graph above, we were obtained the value of Internal Rate of Return which as shown below.

13 | P a g e

4.67540503%

Internal Rate of Return (IRR)

At NPV=0

8,000,000,000.00

6,000,000,000.00

4,000,000,000.00

2,000,000,000.00

0.00

(2,000,000,000.00)

(4,000,000,000.00)

Year

NCF after tax

Discount

Rates

1%

5%

10%

20%

30%

40%

14 | P a g e

Net Present

Value(NPV)

RM6,163,226,9

17.76

RM3,789,684,0

46.49

RM2,022,504,4

99.92

RM451,106,109

.04

(RM60,077,878.

40)

(RM213,650,26

6.62)

RM7,000,000,000.00

RM6,000,000,000.00

RM5,000,000,000.00

RM4,000,000,000.00

RM3,000,000,000.00

RM2,000,000,000.00

RM1,000,000,000.00

RM0.00

0.01

(RM1,000,000,000.00)

0.05

0.1

0.2

0.3

0.4

Discount Rate

Figure 11: The graph of Net present value against Discount rate

From the graph above, we were obtained the value of Internal Rate of Return which as shown below.

28.036041%

Internal Rate of Return (IRR)

At NPV=0

The basic measure in the analysis is to fabricate a Net Cash Flow Diagram for the

lifetime of the project. The aim of fabricating the net cash flow is so that the saving and all

the costs could be put into account. The Simple Payback Period is the amount of time to

recover the capital cost of the initial investment. This is done by utilizing the net cash flow

per year for the initial few years.

Payback period = (capital cost)/(cash flow/year)

The Net Present Value (NPV) is detemined by finding the value of each cash flow

when it is brought back to the present by the use of the interest or discount rate, followed by

subtracting the capital cost. the assumption that the cash flow comes at the end of the interest

period is believed to have accurate calculation

The meaning of Internal Rate of Return (IRR) is the interest rate at which the NPV is

zero. IPR calculation does not have a closed form solution. It is solved iteratively by

successively testing interest rate values and checking for a NPV of zero. Both NPV and IRR

are known as the time functions from the outlood of how further into the future the analyst

desires to consider these values for purposes of comparison of present investment decisions.

15 | P a g e

According to the Field development projects for all 3 scenarios, the value of IRR of

each and every scenarios are not same and usually the economic results of a project may not

be straightforwardly measurable, but may be a function of a key parameter of the project

results, whose direct measurement is beyond the scope of the project. Based on our field

development project at offshore of Sarawak, we were acquired the result by carrying out the

comparision of the value of IRR for every single project planning for both Project and

Contractor..

Result :

Field Development

Contractor

Project/Company

Shared Pipeline

10.54417293%

34.296727%

Rent FPSO

3.69840102%

27.656322%

Decision Making

For the time for selecting among mutually exclusive projects or features of the same

project, NPV, IRR, and payback period, they should be evaluated for each option in order to

arrive at the best economic alternative. If the mutually exclusive options have different life

spans, NPV is typically the best metric for comparison because all savings are brought to the

present. From the outcome, the Option #1 Field Devlopment Project is the most profitable

way to operate the field of interest. That shows that the company is recommended to use and

construct their own pipeline the offshore of Terengganu. Based on the assessment , the Option

#1 development Project gives the highest percentages of Internal rate of Return(IRR) among

the 3 projects planned.

16 | P a g e

CONCLUSION

For the conclusion of our assessment of the Field Development Project planning for the oil

operation of transportation methods to the onshore, we have decided and agreed with the first project

planning . Our first project suggested about the constructing their very own oil pipeline that connects

from the offshore platform operation to the terminal which moniterd by the company properties. As

for the second project, the oil pipeline per day has the cost of the rental around $3,000 which results

in moderate percentage of profit income. For the third project, the FPSO rental for operation is about

$345,000 per day for the duration of 15 years and it will cost a lot and is proved that it is has the

minimal percentage of profit income. The location of the platform is believed located in the offshore

of Terengganu with the given latitudes and longitudes. Terminal nearby is located at Kemaman which

is known as Kemaman Supply Base. The distance between the platform and the terminal is about

183.47 km.

Then, the economic assesment parameters involved in this projects are functioning as the

control variable for decision making for choosing the right and the most preferable methods that will

generate a very high income for both of the parties who are the contractor and company. The most

vital parameters are the Net cash flow diagram, Breakeven, Payback period, Net Present Value (NPV)

and also the Internal Rate of Return which are known as the time function for the assumption of the

future profitable income and futhermore for investment planning for the project operation in future.

17 | P a g e

REFERENCES

1. Concepts in Economic Evaluation. (n.d.). Retrieved May 13, 2016, from

http://ocw.jhsph.edu/index.cfm/go/viewCourse/course/ConceptsEconomicEvaluation/

coursePage/index/

2. How to Calculate Your Internal Rate of Return on Investments. (n.d.). Retrieved May

13, 2016, from

3. http://moneyover55.about.com/od/howtoinvest/g/internalrateofreturn.htm

4. How to Calculate Your Internal Rate of Return on Investments. (n.d.). Retrieved May

13, 2016, from

http://moneyover55.about.com/od/howtoinvest/g/internalrateofreturn.htm

5. Oil and gas property valuation and economics. (2010). Richardson, TX: Society of

Petroleum Engineers.

18 | P a g e

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