Tutorial Lobster Field

[Acceleration Project]
Questions [lfq]

The Lobster Field is a small, onshore reservoir. The Field is currently producing 11,800 barrels
of oil per day. The Operator is considering whether to work-over the producing wells in order
to improve the performance of the field. The major impact of the work would be to improve
productivity in the short term, but at the expense of production in the longer term. Some
improvement in overall recovery is also expected.

The work-overs would cost $10 million and could be completed during 2005. As a result of the
accelerated production, the field lifeis expected to be reduced by one year, with a saving of $2
million in fixed Opex in that year. . Variable Opex, related to production amounts to about $1
per barrel. These costs are in $2004 terms.

The current planned and accelerated production profiles are presented in Table lfq (1) below.

Table lfq (1):- Lobster Field Production

Year Current Profile Accelerated Profile

2005 11800 11800

2006 10000 10400
2007 8510 9310
2008 7220 8220
2009 6150 7150
2010 5200 5800
2011 4440 4640
2012 3760 3560
2013 3200 2900
2014 2740 2340
2015 2340 1840
2016 2000 0

You are required to advise the Operator whether to proceed with the planned investment .

Current policy of the Company is to assume an oil price of $20 dollars per barrel, constant in real
terms over the life of the project. In this case, taxation and inflation effects are to be ignored.

30/10/14