Petroleum Project

Economics
Econ210D
Presentation 6

Sensitivity Analysis for Changing

Variables
1
Week 6
 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 project

Sensitivity Analysis for Changing 2

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.

Sensitivity Analysis for Changing 3

Variables Week 6
Petroleum Project Parameters
Parameter Field Estimate
Recoverable Reserves 160 mbo
Field Life 20 years
Oil Price $60
Total CAPEX $500m
OPEX per bbl $5

Sensitivity analysis examines the effect of

changes in any one of these parameters on
the economic evaluation
Sensitivity Analysisof a project.
for Changing 4
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.
Sensitivity Analysis for Changing 5
Variables Week 6
 Independent and Control
Variables
Parameter Field Estimate Sensitivity Analysis
Recoverable Reserves 160 mbo Control
Field Life 20 years Control
Oil Price $60 Independent
Total CAPEX $500m Control
OPEX per bbl $5 Control

In this sensitivity analysis, oil price is the

independent variable and all other parameters
are control variables.
Sensitivity Analysis for Changing 6
Variables Week 6
 Sensitivity Analysis of Oil
Price
Oil NPV
Price $B

$50 $2.1

$60 $2.9

$70 $3.7

Sensitivity Analysis for Changing 7

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.
Sensitivity Analysis for Changing 8
Variables Week 6
 Spider Plots
NPV due to change in Independent Variables
Change in
Independent
Reserve Field
Variable Price OPEX CAPEX Tax
s Life

-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 4.4
Sensitivity Analysis for Changing 9
Variables Week 6
Sensitivity Analysis for Changing 10
Variables Week 6
Sensitivity Analysis for Changing 11
Variables Week 6
 Other Independent Variables
• Altered production profiles

• Changes in production start-up date

• Unscheduled shut downs

• Inflation

Sensitivity Analysis for Changing 12

Variables Week 6
Sensitivity Analysis for Changing 13
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
Independent
Price OPEX CAPEX
Variable

-50% -2.9 5.8

Percentage
Change
50% 0 4.4

15