OilSim for Authorities

Learning objectives

 Improve your overall understanding of the role of

Governments, National Oil Companies, Local and
International Oil Companies in the petroleum industry
 Understand the overall steps and decision gates in the
Upstream part of industry
Upstream and Decision Gates

Law
Regulations
Petroleum policy

License Field
Exploration Appraisal Operations
promotion Development
License Agreement

Decommissioning
Production Start
Field Dev. Plan
Discovery
To First Oil – this course

Government monitoring/auditing of operations

License Field
Exploration Appraisal
promotion Development
License Agreement

Field Dev. Plan

Discovery

First Oil
Course Challenges

1 2 3
4 5 6
Bidding Partnerships
Nominating Depletion
and and Facilities Construction
blocks and
awarding exploration planning planning and First Oil
Fiscal terms
of licences drilling
Scenario

 Each team is either a Ministry of Energy, a National Oil

Company (NOC) , a Local company (LOC) or an
International Oil Company (IOC) in a country which is
about to open up for exploration for oil and gas
 Your task is to maximize long term value for the country
and/or your company
Teams

1. El Dorado Ministry of Energy (ED MOE)

2. El Dorado National Oil Co. (ED NOC)
3. Shangri La Ministry of Energy (SLMOE)
4. Shangri La National Oil Co. (SLA NOC)
5. BigOil - International Oil Company
6. SnakeOil - International Oil Company
7. Elephant Alliance - International Oil Company
8. Southern Partnership- International Oil Company
9. Local Petroleum of Eldorado (LPE)
10. Local Petroleum of Shangri La (LPS)
Money and Credibility

 Oil Companies start with $250 million

You can apply for more money later.
 Create value
Measured by the net value of the oil and gas fields
discovered MINUS all costs involved.
 Correct answers and sensible decisions are awarded
with Credibility points (CPs)
Login

 www.login.oilsim.com
Home page

Columns e.g C1 and C54

Blocks are divided into

smaller cells
e g. R1C1

Rows e.g R15 and R97

Course Challenges

2 3
1 4 5 6
Bidding
Partnerships
Nominating and Depletion
and Facilities Construction
blocks and awarding
exploration planning planning and First Oil
Fiscal terms of
drilling
licences
Why prepare for licensing
rounds?
 Earn the Government respect
 Increase awareness and credibility in the oil and gas
community
 Attract the most serious players – locally and
internationally
 Firm platform for responsible petroleum resource
management
Challenge 1a

NOCs , LOCs and IOCs

 Nominate 20 blocks for the licensing round
 Submit block recommendations to the Ministry

Ministry
 Consider nomination recommendations
 Select 20 blocks for licensing round
Selecting blocks

 Buy Environmental Sensitive Area map

 Buy Gravimetric and magnetic maps, all 4 quandrants
for each map type
 Buy Commen Risk Segment maps

 Nominate 20 blocks

 Ministry’s final announcment must include 5 low risk

blocks
 Green on all layers in CRS survey
Surface Restriction Areas

Red areas
You will not be allowed
to bid, drill or operate in
any of the red areas
(environmentally
sensitive areas)
Green areas
Blocks in area may be
awarded.
Rock cycle and sedimentary
basins

Sedimentary
basin

Source: http://www.geolsoc.org.uk/rockcycle
Earth’s gravitational pull

 The Earth experiences

gravitational pull towards
the Sun
 Anomalies of the expected
pull are found in different
different sub-surfaces
 Lower gravitational fields
indicates likelihood of low
density rocks
 Sedimentary rocks are low
density and porous
 Can contain hydrocarbons
Gravimetric surveys

 Real Gravimetric survey

 The lower the
gravitational pull – the
thicker the sedimentary
rock is likely to be
 Red on a gravimetric
survey indicates thickest
sedimentary rock
Survey shop

 Survey tab
 But Gravimetric surveys
 South-east quadrant
 The red and yellow areas
indicate basin
Earth’s magnetic fields

 The Earth’s core creates

magnetic fields
 Anomalies of the expected
magnetism are found in
different sub-surfaces
 lower concentration of
magnetic materials can
indicate sedimentary rocks
 Can contain hydrocarbons

Source: http://www.glossary.oilfield.slb.com
Magnetic surveys

 Sedimentary rocks in the

basins have a lower
concentration of magnetic
materials than the
surrounding crystalline
rocks
 Basins have low magnetic
field
 Pink area is thickest rock
of low magnetism
 Magnetic survey:
North-west quadrant
Compare basins and blocks

Inside basin?
Nominate 20 blocks

To nominate a block –
click on it
To deselect a block –
click on it
Challenge 1a

Your turn
Fiscal term considerations?

 What types of terms can exist?

 What is preferential to government?
 What is preferential to IOCs?
 What are the pros and cons for different types of terms?
Challenge 1b

NOCs, LOCs and IOCs

 Submit fiscal terms recommendation

Ministry
 Consider fiscal terms recommendations
 Set fiscal terms for the licensing round
Fiscal levers

 Royalty rate (R)

 Cost recovery limit (C)
 Governmental profit share (G)
 Tax (T)
R: Royalty rate

 A percentage of gross production (sales) that is paid to

the Government
 Between 0% and 100%
C: Cost recovery limit

 How much of the sales shall the oli company be allowed

to recover as costs?
 0% = nothing
 100% = everything (todays case!)
G: Govt profit share

 The profit is shared between the Oil Company and the

Government
 How much of the profit shall be taken by the
Government?
 0% to 100%
T: Tax

 How much tax shall be paid of the oil Companies profit?

 A number between 0% and 100%
Example

 $1000M sales value

 $450M in costs

 10% Royalty (R)

 40% Cost Recovery Limit (C)
 40% Government Profit Share (G)
 50% Profit Tax (T)
10% Royalty
Royalty
Sales 1000M 100M
Cost
450M

Royalty 10% of $1000m

= $100m

$450m costs
40% Cost Recovery Limit
Royalty
100M
Sales 1000M
Recoverable
Cost
400M

$450m costs

Cost recovery limit

40% of $1000m = $400m
Costs 50M
40% Gov Profit Share
Royalty
100M

Sales 1000M
Recoverable
Cost
400M
Government Profit
Share

$1000m-$100m-
Govt Profit $400=$500m x 40%
200M
=$200m

Costs 50M
50% Profit Tax
Royalty
Sales 1000M 100M
Recoverable
Cost
400M

Profit before tax

$1000m-$100m-$400m-
$200m=$300m
Govt Profit
200M 50% profit tax on
$300m=$150m
Tax
150M

Costs 50M
Fiscal results
Royalty
100M Government
Recoverable
Sales 1000M
Cost $450M
400M

Company
$100M
Govt Profit
200M
Costs
$450M
Tax
150M

Costs 50M
Company
100M
Activity

 Define the fiscal terms – balancing the

country’s interests with attracting enough
good companies to invest

 Too strict: no interest from companies

 Too lenient: not enough benefit to the country
Ministry sets fiscal terms
Challenge 1b

Your turn
Course Challenges

2 3
1 4 5 6
Bidding
Partnerships
Nominating and Depletion
and Facilities Construction
blocks and awarding
exploration planning planning and First Oil
Fiscal terms of
drilling
licences
Licensing
Licensing considerations:
Prospectivity
Ranking (with respect to resource potential)
Oil or gas
Exploration maturity
Data coverage
Environment restrictions
Disputed or sensitive areas
Indigenous/regional rights

Terms:
Fiscal
Work obligations – Block size and shape
Challenge 2

Ministry
 Identify blocks that are likely to be the most economically viable
for exploration and production
 Get advise from NOC with selecting blocks that oil companies
find interest for exploration

IOCs , LOCs and NOCs

 Identify the 3 most promising blocks and submit a bid to the
ministry for these blocks
Source and migration
5.STRUCTURAL OR
STRATIGRAPHIC TRAP
2. MIGRATION ROCK 3. RESERVOIR ROCK
where hydrocarbons Rock with porosity
are driven through and permeability

1. SOURCE ROCK 4. CAP ROCK

where organic material Impermeable rock
is put under sufficient that stops
pressure and migration of
temperature hydrocarbons PROSPECT
Traps
Geological “pockets”, that might contain hydrocarbons.

Anticline trap Stratigraphic

(c) OLF
Salt dome trap
trap
Fault trap
Play element mapping

Source Reservoir Seal

• Presence • Presence • Presence
• Quality • Quality • Capacity
• Maturation
• Migration
• Timing
Common Risk segment maps

 Play elements are converted to risk segment maps

 Risk maps for each element are combined into
Common Risk Segment map - CRS
Source: www.prweb.com
Common Risk Segment
Highest probability
Moderate probability
Lowest probability
Surface

Layer 3 Eocene
1500m below the surface

Layer 2 Paleocene
2500m below the surface

Layer 1 Cretaceous
3500m below the surface
2D Seismic surveys

 Traps can be found with seismic surveys

 2D seismic survey is a cross section of the geological
layers along either a column or a row.
 2D seismic surveys are used for locating prospects.
Order seismic

 Survey Tab
 Order from Survey Shop
Order seismic

What type of data do you want?

 Columns or Rows
 Unprocessed or processed data
 Interpreted or not
 Move yellow hatched area to block you want to order
View the Seismic
2D seismic in OilSim

Unprocessed Processed

Interpreted Red is top of the

cap rock

Green is top of the

reservoir rock
Anticlinal traps
Fault traps

Leakage? Sealant rock

Leakage?

The cap rock

Viewing seismic
Columns Rows

C41
R17

C43 R19

C45 Block 534 R21

C47 R23
Viewing seismic
Columns Rows
R17
C43 C41 R19
C41 C45 R21 R17
C47 R23

C43 R19

C45 R21

C47 R23
 Prospect counting

1
 How many prospects can you see in
each block?
1

3 4

5 6

 How many wells should be committed to?

5 6  Can deviate the drilling by one cell per layer
Cross section

Column

Row

Basin,Source Prospect, Reservoir

Corporate Social
Responsibility

 Activities that oil and gas companies do to serve the

communities they operate in
 CSR projects usually to develop the local communities
in education, social welfare, and business
 How and why do these CSR projects benefit the
companies?
 Why include CSR terms in a licence bid?
 CSR Tab

 In OilSim teams are

rewarded with CPs
when choosing their
CSR projects
 The Ministry
considers the CPs a
company has when
deciding upon
licence awards
Project Example

 This project costs $8M

 If it goes well, the team gets 40 CP
 The likelihood of this is 60%
 If it goes badly, the team gets zero CP
 Minimum required CP is zero
Result
Limitations

 Variety of projects
 Can spend upto $30 million on CSR projects
 You cannot initiate a project if it has the potential to
make your CP’s go into negative
 You cannot initiate a project if you don’t have the
cash for it
 Each project can only be run once per team with
CSR projects
Company bids

• Chose which blocks you want

to bid for
• For each block, say how many
exploration wells you are
willing to drill
• Do NOT promise to drill more
wells than there are prospects
• An estimated cost is shown
• You will initially only be
awarded one block
Ministry awards licenses
Recap on Challenge 2

 Common Risk Segment surveys to see which blocks to

examine closer
 2D surveys seismic to identify which ones have the
most (big) structures
 Determine well commitment
 Complete CSR projects
 Remember to submit 3 bids
 Ministry awards minimum of one license per company
Challenge 2

Your turn
Course Challenges

2 3
1 4 5 6
Bidding
Partnerships
Nominating and Depletion
and Facilities Construction
blocks and awarding
exploration planning planning and First Oil
Fiscal terms of
drilling
licences
Rights & obligations

NOC/government have rights to:

 Access licence/company data
 Monitor contractors execution of the work program
 Appoint representatives to management team

Oil Company:
 Fulfillment of technical requirements
 Access/maintain sufficient funds
 The right to sell hydrocarbons
 Pay taxes
 Submit reports
 Preferential selection, percentage requirements of service
providers in host country
 Transfer of ownership to third party and NOC interest and issues
The right balance

Government/NOC Oil company

Maximise company
Local expectations
profitability

Country’s economic Commercial

development interests

International goals
National interests
and priorities
Why partner?

 Spread the risk: e.g Investing in other blocks divides

the risks amongst all partners
 Increase probability of profit: investment in only 1 field
which could be a dry prospect is possible, whereas the
likelihood of investing in 5 fields which are all dry is
unlikely
Challenge 3a
 All teams have at least 1
licence
 Select Operated
block(s) on legend
Partnerships

 HQ is happy with the licence awarded

 Farm-out minimum 20% of your license
 Farm-in to other good licenses
 View 3D Seismic maps
 Allow others to view your block and 3d seismic
information
 Negotiate farm-in offers
 Must farm-out 20% of your licence to drill
Real 3D seismic

 Shows the subsurface structure in a cube.

3D Seismic
in OilSim
Prospects
are no
Layer 3 Eocene guarantee of
oil or gas

Layer 2 Paleocene

Layer 1 Cretaceous
Farm-in
Sending farm-in offers
Enter the
percentage and
total amount you
have agreed to
offer
Minimum
$100,000 per %
Add a message to
the seller
Press “Send
offer”
Farm-in

When a team receives a Farm-In offer it appears under Financing.

This is where a team can receive finance or money for a % of their
own blocks
Offer received
 License OWNER
decides whether to
ACCEPT or REJECT the
offer
 Partnerships
established every time
a license owner
accepts an offer.
 Overview: On the main
page, you can see all
licenses. 1) licenses you
operate, 2) licenses
you have invested in,
and other licenses.
Investments

All your farm-in offers to other teams are shown under “Investing”
on the right-hand side of the homepage .
This is where a team offers investments to other teams for a % of
their blocks
Partnerships

 Partners pay a proportional share of all future costs

 Partners receive a proportional share of the net
proceeds from oil and gas
 The operator team makes all decisions regarding
drilling
 Teams can farm-out up to 70% of licence
 Operators must keep 30% of licence
Challenge 3a

Your turn
Local content/localization

CAPEX and OPEX can contribute to local economic and

social development
Direct and indirect employment
Advancement of productive skills
More competitive local enterprise sector
Local infrastructure development
More effective local
institutions
Local Content

 Malus 19%
 Quercus 17%
 Betula 24%
 Salix 26 %
 Ulimus 19 %
Choose rig

 Single Rigs (Truck mounted)

 Double Rigs (Light duty)

 Triple Rigs (Heavy duty)

 Choose Rig

 Max drilling depth is

important

 Rig cost = drilling

days * day rate
 Service providers

9 Star quality:
 Good- costs more
 Bad: - cheaper, but reliability
is low
5 types of providers:
Construction and Maintenance ,
Logistics, Well Services, Camp
Services and Analysis
Environmental Impact
Assessment
Drill

Layer 3 Eocene

Layer 2
Paleocene

Layer 1 Cretaceous
Selecting drill cells

 Can choose a cell on all three layers

 Deviate by only one cell per layer, either
vertically, horizontally or vertically
Controls and estimated costs

Oil spill or
Gas Blowout
control

Estimated
cost
Drilling Days
Results

 Volume Range in
MBOE counts

 Test may increase

Proven MBOE if
oil or gas found
After testing
Reinterpret seismic
Value
Discovered prospects
Assumptions
Value calculation

25% of 8 MBOE @ $50

Expected costs if
you developed the
field (capex) and
produced
the oil (opex)

If total expenses are

higher than the sales
value, the value of the
license is zero
Appraisal

 From Probable volume to proven reserves

Drilling – Wildcats &
Appraisals
Wildcats Appraisals
 Drill into every
prospect once
(Wildcat)
 Continue appraisal
drilling if possible
to increase the
proven and reduce
the potential
Appraisal drilling
Increasing proven volumes

 Appraisal wells - proven reserves increase

 Range between proven and possible is decreased
Effect on calculation of
licence

Expected costs if
you developed the
field (CAPEX) and
produced
the oil (OPEX)

Now total expenses

are lower than the
sales value and so
we have a positive
licence value
Challenge 3 decisions

 After your first drill into a prospect, test and reinterpret

the seismic
 Decide which discoveries to drill how many appraisal
wells into

 Ultimately, you should either:

 Get a positive net present value,
 Or a conclusion that additional appraisal wells will not result in a
net present value
Challenge 3b

Your turn
Course Challenges

2 3
1 4 5 6
Bidding
Partnerships
Nominating and Depletion
and Facilities Construction
blocks and awarding
exploration planning planning and First Oil
Fiscal terms of
drilling
licences
Field Development Planning

Feasibility studies to reach a Final Investment Decision

(FID) :
Technical challenges –terrain/weather
Optimal development
Cost analysis/Project economics
Project schedules
Waste management/environmental impact
Sustainability
Production profiles
Local content
Challenge 4 - Well plans

Make a well plan for each reservoir

in your block, choosing:
 Number of production wells
 Tubing size
Aiming to choose a plan that
maximizes value of block
 Increased sales value
 Decreased drilling costs

Government assists the NOC and reviews all company

plans
Nodal analysis
 Read the maximum well flow rate
 Most suitable Tubing size
Most
suitable tube

Highest well
flow rate
Expected production profile
Reservoir information

1. Click the Reservoir tab

2. Click the magnifying

glass for the reservoir

3. Study the data for

the reservoir
Submit well plan

 Click on Drilling Rig

Updated reservoir
information
Amend well plan
Combined plan
Improve value

 Compare plans - different number of wells and tubing

sizes
 Review revised plans – reservoir values
 You can amend your well plans until the deadline
 Credibility points – upto 100 CPs if plans are optimal
for all your reservoirs
 After deadline – Value of Licence will be adjusted
based on final Well Plan submitted
Ministry revises fiscal terms
Challenge 4

Your turn
Course Challenges

2 3
1 4 5 6
Bidding
Partnerships
Nominating and Depletion
and Facilities Construction
blocks and awarding
exploration planning planning and First Oil
Fiscal terms of
drilling
licences
Facilities planning

 Plan the facilities to produce

the oil and gas that has been
found in the block
 Maximize the value of the
license block
 Maintain sales value
 Decrease facilities costs
 Reduce risk
Environmental surveys

Earthquake survey Hurricanes

legend

Earthquake
survey legend
Finding Production Profile
Combined Production Profile
Facility selection
Choose a facility –
type depends on capacities required
 Facility capacities

 Single – small plant

 Double – medium plant
 Triple – large plant
Transport volumes
 Estimated no. of barrels can be
transported per day Different
flowline (riser) and pipeline sizes =
Different no. of barrels

 Flowline size :
 Multiphase fluid to platform
(acting as flowline and riser)
 Pipeline size :
 Oil and condensate to storage
tanks
 Gas to processing plant
Platform parameters
Transport connections
 Connect pipelines to Gas terminal and an Oil terminal
 No gas flaring allowed or shipping tankers available
Facility flow

 Green dots – good plan

 Orange dots – plan works but
not optimal
 Red dots – obstruction in flow
Challenge 5

Your turn
Course Challenges

2 3
1 4 5 6
Bidding
Partnerships
Nominating and Depletion
and Facilities Construction
blocks and awarding
exploration planning planning and First Oil
Fiscal terms of
drilling
licences
Tools to increase local
content
 Concession policies
 Production Sharing contracts
 Technology transfer
 Tax incentives
 Procurement and contract strategies
 Support for SMEs and entrepreneurs
 Mentor programs
 Enterprise centers
 Cluster programs and use of free zones
Obstacles to increasing local
content
 Lack of domestic manufacturing, fabric and service capabilities to
support the oil and gas sector
 Lack of HSE and QA standards
 Lack of internationally recognized training/qualifications
 Equipment and expertise must be imported
 Lack of funding/cashflow available to local entrepreneurs
 Difficult to offer comparative service/financial terms to those of
international companies
Construction

 Plan the construction of facilities required to operate

your platform
 Submit a financial summary of the plan
 Execute construction plan
 Minimize capital expenses
 Amend construction plan as issues occur
 Get to FIRST oil or gas!
Planning construction

PART A
 Activity Hierarchy Survey – study activity dependencies
 Vendor report - compare providers/local content
 Prepare construction plan
 Use Challenge sheets and prepare Gantt chart
 Submit Planning Summary
Activity Hierarchy
Where a solid arrow
connects activities,
commencement of
Choose only 1 an activity is
activity – where a dependent upon
Dotted line the preceding
connects activity(ies) being
activities completed
Vendor report
Considerations:
 Reach First Oil or
gas within 11
periods of 180
days – TOTAL
1980 days
 Time V. Cost
 Local Content
Planning Summary
Recap

PART A
 Activity Hierarchy Survey – study activity
dependencies
 Vendor report - compare providers/local content
 Prepare construction plan
 Submit Planning Summary
Challenge 6a

Your turn
Construction execution
Activities in first period
Activity feedback
Activity
completed
Activity delay
still ongoing
Issue with
activity

Progress of activity
Activity stopped – select another
provider and restart activity
Period information
Timeline
First oil and bonuses
Recap
PART B
 Execute Plan - as many activities as possible within
each period; provider for each activity
 Check Timeline chart to see progress
 Reassess/alter providers as issues occur
Challenge 6b

Your turn
Operations
Strategy discussions

 Financial consequences of your decision?

 Other major drivers of decision
 Did country strategy play a role?
 Above-ground risks?
 Changeable market conditions?
 Impact on commercial contracts?
 Operating agreements affected?
 Other information to consider?
Challenge 7

 Production has started and your challenge is to:

 Keep the oil and gas flowing
 Maximize recovery rates
 Act in a safe and environmentally responsible way
2013

 Gas prices have dropped 50% in your market

 1: Drill a moderate number of injection wells. The cost will be
$50M in CAPEX. OPEX per BOE is unchanged. Gas volumes will
decrease by 20% each year while oil volumes will increase by 6%
each year, as measured against the current production profile.
 2: Drill many injection wells. The cost will be $100M in CAPEX.
OPEX per BOE is unchanged. Gas volumes will decrease by 50%
each year while oil volumes will increase by 12% each year, as
measured against the current production profile.
 3: Do nothing
2018

 There has been a "blowout" on the platform of another operator. The

government is under pressure to withdraw licenses
 1: Invest $50M to inspect the blow-out preventers and demonstrate
they meet current standards. Implement improved SSHE procedures.
The probability of losing your license to operate is estimated at 10%.
 2: Invest $200M in new blow-out preventers that exceed all existing
standards. Implement improved SSHE procedures. The probability of
losing your license to operate is estimated at 1%.
 3: Do nothing. The probability of losing your license to operate is
estimated at 20%.
2023

 An LNG plant (export) is under construction. This terminal is

offering a 50% increase over existing prices on a two-year
contract, after which prices are set on the spot market
 1: Construct a pipeline to the new LNG plant that will allow you to
transport up to 50% of your gas. CAPEX costs are $50M, with no
impact to existing production.
 2: Construct a pipeline to the new LNG plant that will allow you to
transport up to 100% of your gas. CAPEX costs are $100M, with no
impact to existing production.
 3: Do nothing.
2028

 Your asset has 10 more years of estimated life before decommissioning. The
earlier blowout has created a litigious environment. “Asset Enhancement” is
investigating alternatives.
 1: Another major already operating in the field has offered to purchase your
asset for a lump-sum price equal to 70% of the remaining estimated NPV. You
have no exposure, with all liability assumed by the other major.
 2: A small independent wants to make a play in the field. Their operating costs
are very low and thus feel they can offer 95% of the remaining estimated NPV.
The (weak) legal opinion is that liability is transferred.
 3: Produce to end-of-life and decommission the asset. Cost of
decommissioning $500M