X-Field Development: Financial Analysis and Economic Evaluation

Introduction

This project of the X-Field Development Plan focused on the economic analysis of the project, evaluating its financial viability and providing recommendations for optimal development strategies. I played a key role in analyzing cost estimates, assessing various economic parameters, and conducting sensitivity analyses to determine the project’s economic feasibility.  

Objective

The objectives of economic analysis on this field development strategy are:

• To determine the best economic option for facilities proposed by the facilities engineering team.

• To evaluate the economic feasibility for the proposed production scenario by reservoir engineering team, drilling engineering team and production technologist based on NPV, Payback, and PI.

• Accounting for uncertainties and potential changes by incorporating contingency costs.  

Assumptions

The assumptions that were used in the economical net cash flow analysis are as follows:

• Inflation: Considered to be at a rate of 3%, which is representative of a reasonable period of years in the UK.

• Oil price: Assumed value is 15 $/bbl in real terms, constant during the life of the project. Although oil price was constant at approximately 23 $/bbl last year, recent fluctuation in the volatile crude oil market means that the project should be viable at depressed prices.

• Exchange rate: Considered at 1.5 $/£ for the 18 year life of project.

• Gas price: Considered constant at 2.5$/MScf in real terms for the duration of project.

• Gas and oil tariff: These prices have been negotiated with a representative of BP. Oil and gas tariffs will be charged at 0.6 £/bbl and 0.5 £/MScf of oil and gas respectively. They are considered in real terms and will be constant for the life of the project.

• Corporation tax: A consolidated tax scheme is assumed, supposing that the company is engaged in different projects at the same time. Corporation tax is assumed to be charged at 30 % for the life of the project. Abandonment will be claimed at 100 % in the year of expenditure.

• Payments: Transactions carried out half in year considered and half the following year.

• Discount factor: Perhaps the variable with the greatest impact on economic analysis, Xenon considers a discount rate of 10 % representative, based on other North Sea economic valuations and is a Department for Business, Energy & Industrial Strategy, Oil and Gas Authority assumption.

Model structure

The following economic model parameters were considered while developing the economic model:

• OPEX and CAPEX parameters  

• Inflation rate (3%)  

• Oil and gas prices and tariffs  

• Discount factor (10%) and rate (7%)  

• Corporation tax (30%)  

• Exchange rate (1.5 $/£)  

• Cash flow  

• Assets  

Visualization