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Group Project

Evaluation and Management of Petroleum Project

SKPP 3113
2015/16-II
SECTION 1, GROUP 08

GROUP MEMBERS:

1.

MUHAMMAD AMEERUL ZAEEM BIN MD ZUHRI

2.

NG LIN ZHI

LECTURER:

EN AZMI MOHD ARSHAD

DATE OF SUBMISSION:

19th MAY 2016

Petroleum Engineering Department


Faculty Chemical Engineering and Energy Engineering
Universiti Teknologi Malaysia
81310 Skudai Johor

Table of Contents
1.0 Introduction ............................................................................................................................................ 4
2.0 Economic Evaluation ............................................................................................................................... 5
2.1 OBJECTIVES OF ECONOMICS EVALUATION:........................................................................................ 5
2.2 Scope of work...................................................................................................................................... 5
2.3 TASK LIST OF THE ECONOMICS DEPARTMENT.................................................................................... 6
Table 1.0 General profile of task list of economy department ............................................................. 6
2.4 STRATEGIES OF PLANNING STAGE ...................................................................................................... 7
3.0 DEVELOPMENT PERIOD .......................................................................................................................... 8
3.1 DEVELOPMENT PHASE ........................................................................................................................ 8
3.2 Production phase ................................................................................................................................ 9
4.0 COST ESTIMATIONS................................................................................................................................. 9
4.1 CAPITAL EXPENDITURE (CAPEX) ........................................................................................................ 11
5.0 ECONOMICS EVALUATIONS ASSUMPTIONS ......................................................................................... 15
6.0 REVENUE ITEMS .................................................................................................................................... 16
7.0 FACTOR INFLUENCING THE EVALUATIONS ........................................................................................... 16
7.1 RESERVES .......................................................................................................................................... 16
7.2 PRODUCTION RATE ........................................................................................................................... 16
7.3 DEVELOPMENT COST ........................................................................................................................ 16
7.4 OIL PRICE ........................................................................................................................................... 16
7.5 OPEX .................................................................................................................................................. 17
8.0 UPSTREAM PROJECT ............................................................................................................................. 17
8.1 EXPLORATION COST .......................................................................................................................... 17
8.2 DEVELOPMENT COST ........................................................................................................................ 17
8.3 OPERATING COST .............................................................................................................................. 17
9.0 ECONOMICS MODEL ............................................................................................................................. 18
9.1 ITEM .................................................................................................................................................. 18
9.2 ECONOMIC INDICATORS ................................................................................................................... 18
10.0 ECONOMICS EVALUATION .................................................................................................................. 18
Table 2: Plan A..................................................................................................................................... 19
Table 3: Plan B ..................................................................................................................................... 23
11.0 SENSITIVITY ANALYSIS ......................................................................................................................... 24

Table 4: Sensitivity analysis of NPV for plan A ................................................................................... 26


Table 4: Sensitivity analysis for plan B ................................................................................................ 28
12.0 CONCLUSION ....................................................................................................................................... 33
Table 5: Table Plan A ........................................................................................................................... 34
13.0 REFERENCES ........................................................................................................................................ 35

Table of Figures
Figure 1: Planning stage................................................................................................................................ 7
Figure 2: CAPEX schedule for plan A ........................................................................................................... 11
Figure 3: Map of pipeline ............................................................................................................................ 12
Figure 4: CAPEX schedule for plan B ........................................................................................................... 13
Figure 5: Map for FPSO ............................................................................................................................... 13
Figure 6: Production rate for both plan ...................................................................................................... 19
Figure 7: Project Cash flow for plan A......................................................................................................... 19
Figure 8: Contractor cash flow for plan A ................................................................................................... 20
Figure 9: Petronas cash flow for plan A ...................................................................................................... 20
Figure 10:NPV Project cash flow for plan A ................................................................................................ 21
Figure 11: NPV Contractor cash flow for plan A ......................................................................................... 21
Figure 12: NPV Petronas cash flow for plan A ............................................................................................ 22
Figure 13: Project cash flow for plan B ....................................................................................................... 23
Figure 14: Contractor cash flow for plan B ................................................................................................. 23
Figure 15: Petronas cash flow for plan B .................................................................................................... 24
Figure 16: NPV Project cash flow for plan B ............................................................................................... 24
Figure 17: NPV Contractor cash flow for plan B ......................................................................................... 25
Figure 18: NPV petronas cash flow for plan B ............................................................................................ 25
Figure 19: Sensitivity analysis for plan A ..................................................................................................... 27
Figure 20: Sensitivity analysis for plan B ..................................................................................................... 28
Figure 21: Project cash flow both plan ....................................................................................................... 29
Figure 22: Contractor cash flow for both plan ............................................................................................ 29
Figure 23: Petronas cash flow for both plan ............................................................................................... 30
Figure 24: NPV Project cash flow for both plan .......................................................................................... 30
Figure 25: NPV Contractor cash flow for both plan .................................................................................... 31
Figure 26: NPV Petronas cash flow for both plan ....................................................................................... 31
Figure 27: Sensitivity analysis for plan A and B........................................................................................... 32

1.0 Introduction
Hanuman field is a big oil field, it contains two reservoir layers, so in order to
develop the field and gain profit, we have to develop the field with a low capital
expenditure (CAPEX) and choose very profitable income.
By using data from the development team, a cash flow model based on the 1985
Production Sharing Contract (PSC) will be used. The cash flow will determine the
revenue, expenses and expected return from the investment. From the cash flow,
several common economics indicator such as NPV (Net Present Value), IRR (Internal
Rate of Return) and others detected. Some analysis such as the Sensitivity Analysis
has been done to determine the factors that affecting the project. All these items briefly
discuss later. The political risk in Malaysia is considered insignificant due to current
issue and historical data.
For plan A, we have decided to build 82.29km pipeline from the production
platform to connect with the existed pipeline and rent 42.83km pipeline SK314A from
Murphy to Bintulu Crude Oil Terminal. While for plan B, we have decided to rent FPSO
to transport our crude oil to the terminal.

2.0 Economic Evaluation


The development of field is characterized as a high cost project. So after the oil
has been discovered, the development plant should be done to evaluate the project
either it profitable or feasible to continue for the next investment.
This evaluation should be done to ensure the investor would even get a huge
loss from its investment. These evaluations provide the investor a great effort to
understand all the uncertainties, level of risk and the reward from the investment. The
improper development plan perhaps should be the one of the factor of losing the
investment.
The driving force behind investment decisions of petroleum companies is to
minimize their value by exploring, developing and producing a petroleum reserve at the
lowest cost to get highest profit margin.

2.1 OBJECTIVES OF ECONOMICS EVALUATION:


To evaluate the profitability and feasibility of the field development plan.
List the non-financial risks and evaluate the impact of those parameters to the
project.
Proposed suitable suggestion for the development plan
Concern about related issue in this industry

2.2 Scope of work


Build an economics model based on1985 Production Sharing Contract.
Development Planning
Economic indicators:
a) Net Present Value
b) Internal Rate of Return
c) Payback Period

2.3 TASK LIST OF THE ECONOMICS DEPARTMENT

Task
Serve as one of the
backbone in planning,
budgeting and scheduling
the entire plan.
Understand both the
business and technical
condition of the plan.

Evaluate the
profitability and
feasibility of the field
development plan

Identify the risk,


uncertainties, and level of
them influencing project
based on sensitivity
analysis.

Propose suitable and


alternative suggestion for
the development plan.

Input
Data from the other
departments, especially from
the reservoir simulation and
production department for
providing production
profile.
Petroleum Sharing
Contract (PSC).
Fiscal term and non-fiscal
term in project
Data valuable for price
assumptions, production
profile and cash flow
developing.
Company policies and
budgeting.
Necessary assumptions
Cash flow without fiscal
term should be considered
if project not feasible to
develop base on fiscal
term.
Available risks in project.
Financial and non-financial
risks.
Issues regarding the oil
and gas industry.
Sensitivity Analysis
Method
Data from the previous
analysis.
Details analysis from all
department

Output
Data valuable for price
assumptions, and cash
flow developing.

Feasibility and
profitability.
Accuracy of forecast
economic evaluation
with consideration of
risk and uncertainty in
project.

Potential risk
management.
Suggestions and
alternative
plans for the
development
plan.
Alternative plans for
the development plan.

Table 1.0 General profile of task list of economy department

2.4 STRATEGIES OF PLANNING STAGE

Figure 1: Planning stage

3.0 DEVELOPMENT PERIOD


The development period will start after the oil found is commercial to develop.
For this project we estimate the development phase should be complete in 5 year. This
figure below will show the development schedule that need to be performed in 5 year.
The principles to design and develop the Hanuman Field are:
Optimizing economics
Minimizing the environmental impacts

Meeting the technical, safety and integrity needs of facilities operating typical
development stage:

a) Preparing the site


b) Installing facilities
c) Drilling and well completions

3.1 DEVELOPMENT PHASE


The development phase begins after the field development plan is prepared. The
development phase can be divided into 3 stages:
a) Construction phase: At this stage, construction for platforms structure is
conducted by surface production manager in the most economic manner.
b) Offshore installation: At this stage all the equipment will be install to the
platforms. The equipment will be set according to developed procedures and
specifications. Safety inspection before any operation started up.

c) Development drilling: Drilling operation only can start after the construction
phase and all the facilities are completed.

3.2 Production phase


The production phase only begins early in 2022. All the wells will start to flow
altogether despite flowing it one by one after completion complete due the constraint of
operating cost. Its not feasible since the production cannot cover the high operating
cost.

4.0 COST ESTIMATIONS


Cost is major things in all the phase of oil and gas field industry. Begin with the
exploration phase, development phase and operation phase during the field life; it would
cost a lot of money. For this evaluation the exploration cost will be determine as the
sunk cost because the exploration phase has been done. So the next phase will include
the development cost and the operation cost.

Classification of Cost
1. Capital Expenditure (CAPEX)
Fixed CAPEX
- Platform
- Substructure
Facilities +Tangible CAPEX
- Topsides
- Pipelines
- Drilling Tangible
Intangible CAPEX
- Drilling Intangible

2. Operation Expenditure (OPEX)


Inspection and Maintenance
- Platform
- Pipelines
Logistic and Consumables
- Helicopter
- Boat
- Diesel cost
Well Cost
- Oil production non-routine maintenance (well work over)
- Oil production routine maintenance
Insurance
- Platform insurance
- Pipeline insurance
Field/Project Cost
- Supply base/warehouse
- Operational support
Tariff Cost

4.1 CAPITAL EXPENDITURE (CAPEX)


Capital Allowance:
Fixed CAPEX : 10% per year
Facilities and Tangible CAPEX : 20% per year
Intangible CAPEX : 0 %
CAPEX estimation:
Platform + substructure = 120MMUSD
Jacket = RM400,000,000
Topsides= RM640,000,000
Pipeline = RM1,200,000/km
Topside & CPP = RM880,000,000
Well Cost = RM60,000,000/ well
FPSO = RM 547,500,000
CAPEX Schedule
Plan A (build pipeline + rent pipeline)
Year
Sunk Cost, RM
FPSO
Jacket, RM
Topside, RM
Topside & CPP, RM
Pipeline, RM
Well cost, RM

2017
584,000,000.00
9,874,800.00
-

2018
19,749,600.00
-

2019
220,000,000.00
29,624,400.00
-

Figure 2: CAPEX schedule for plan A

2020
140,000,000.00
192,000,000.00
220,000,000.00
19,749,600.00
330,000,000.00

2021
260,000,000.00
448,000,000.00
440,000,000.00
19,749,600.00
330,000,000.00

Figure 3: Map of pipeline

Total distance, km

125.12

Borrow pipeline SK314A, km

42.83

Build pipeline, km

82.29

Calculation for number of wells


Oil Peak Rate = 3-4% STOIIP
P50 = 420MM STB
Np = 420MM * 4%
Number of wells: ( 420000000*4%)/(4000*365)
= 11.50684932
= 11 wells

Development Cost
Component
4 Leg Jacket
Topside
Topside&CPP
Pipeline
Well Cost
Total

RM
400,000,000
640,000,000
880,000,000
98,748,000
660,000,000
2,678,748,000

Plan B (with FPSO)


Year
Sunk Cost, RM
Pipeline
Jacket, RM
Topside, RM
Topside & CPP, RM
FPSO, RM
Well cost, RM

2017
584,000,000.00
273,750,000.00
-

2018
273,750,000.00
-

2019
220,000,000.00
-

Figure 4: CAPEX schedule for plan B

FPSO

Figure 5: Map for FPSO

2020
140,000,000.00
192,000,000.00
220,000,000.00
330,000,000.00

2021
260,000,000.00
448,000,000.00
440,000,000.00
330,000,000.00

Calculation for number of wells


Oil Peak Rate = 3-4% STOIIP
P50 = 420MM STB
Np = 420MM * 4%
Number of wells: ( 420000000*4%)/(4000*365)
= 11.50684932
= 11 wells
Development Cost
Component
4 Leg Jacket
Topside
Topside&CPP
FPSO
Well Cost
Total

RM
400,000,000
640,000,000
880,000,000
273,750,000
660,000,000
2,853,750,000

For this anticipate of monetary assessment is under 1985 PSC game plan insignificant
the joint endeavor component. There were around three situations that our gathering
recommended for the creation. From the area of the given direction, 113 10' 12"E 417'
24"N, we found that it was situated at the seaward of Sabah region which evaluated
around 125.12 km.

The getting ready for field improvement venture have been talked about and concoct a
few thoughts and arrangement. For our gathering, fundamentally we figured out how to
assess two distinctive methods for working arranging. Firstly, the organization
developed their own particular pipeline from the field important to Oil Terminal for
125.15km for length. In conclusion, we were arranging of leasing a Floating Production
Storage Offloading (FPSO) which is truly costly.

This anticipate ought to be assessed in light of a few of monetary pointer keeping in


mind the end goal to evaluate the plausibility for undertaking development or increasing
speed. The case of monetary pointers are most extreme money sink, breakeven,
payback period, financial farthest point, financial life, extreme income, benefit venture
proportion (PIR), net present worth (NPV), and in conclusion the interior rate of return
(IRR).

Keeping in mind the end goal to recognize the most productive strategy for the field
improvement venture, we need to assess the fundamental information given and look at
the estimation of Internal Rate of Return of every thought.

OPEX Schedule
For OPEX schedule, both plans are the same for fixed opex, the difference is that
only pipeline installation and use of FPSO. For plan A is using the pipeline while for plan
B is using the FPSO.

5.0 ECONOMICS EVALUATIONS ASSUMPTIONS


This value will be used as a guideline for evaluate this project based on the company
policies:

1.

Oil price 2016 = US$45.00/bbl

2.

Gas price 2016 = US$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 US$1.00

7.

Oil production @ peak rate per well = 4000 STB/d

8.

Oil peak rate = 3 - 4% of STOIIP per year (5 years)

9.

Oil throughput fee of UD$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

6.0 REVENUE ITEMS


The gross revenue from this project come from the sale of the oil. So in order to
determine the profit that will come out the oil price must be assumed. The oil price will
influence by several factors.
For cash flow model, we assume the oil price of $ MYR 180 /bbl. From 1985 PSC term,
we can produce oil up to 20 years however we only produced for 14 years to maximize
the production per years in order to have more profits. Optimum oil production for this
field is 16.06MM bbl/year.

7.0 FACTOR INFLUENCING THE EVALUATIONS


This section discusses several factors that perhaps will affect the evaluations. This
factors probably the basic elements in this project. Political risk assumed negligible
since Malaysia is politically stable.

7.1 RESERVES
Reserves estimation at the early stage is important to determine either the field is
profitable to be developed or not. Based on the reserves, type of development plan that
suitable will be considered.

7.2 PRODUCTION RATE


Flow rate from field production should be in the range of demand from customers. It is
important to determine profits from gas sales. Any changes in production profile will give
an impact for the project. Changes in production will occur in several ways either impact
from reservoir properties or changes in regulation by the host government.

7.3 DEVELOPMENT COST


The early investment mostly will stay close to the capital costs that need to be perform
before the production begins. The cost must be reasonable to the profit return.

7.4 OIL PRICE


Oil price is influenced by some factors, including demand.

7.5 OPEX
The operating cost should be lower than the income so there will no negative cash flow.
The negative cash flow means that the production from the field cannot cover the
operating cost for that period.

8.0 UPSTREAM PROJECT


This section will provide the overview for the upstream project cost that occurs during
the field life cycle.

8.1 EXPLORATION COST


Exploration costs be will not be carried to the cash flow, it is determined as sunk cost.

8.2 DEVELOPMENT COST


The development cost will include several items such as offshore platforms,
development drilling and production system

Offshore platforms. These cost depend on field size, water depth and number of slots
(wells)
Development drilling costs include the drilling cost and well completion cost. This cost
depends on numbers of wells and type of completion.

Production system will include the pipeline system. This cost depends on throughout
volume, length of pipe and etc.

8.3 OPERATING COST


The operating cost will include all the cost that occurs during the field operation. This
consists the overhead and management, maintenance and work over. The operating
cost also depends on type operation that used during the operation

9.0 ECONOMICS MODEL


The economic model is generated using the 1985 PSC. Several data are required in
order to construct the economics model such as production profile, CAPEX, OPEX and
oil price. Some calculations are made in the economics model. The calculation formulae
are as indicated in Appendix 1.

9.1 ITEM

Capital allowance
Summary data input
Gas price profile
Profit split computations
Gross gas revenue split
Contractors cash flow
Petronass cash flow
Projects cash flow

9.2 ECONOMIC INDICATORS

Net Present Value


Internal Rate of Return
CAPEX
OPEX

10.0 ECONOMICS EVALUATION


This section will discuss the economics evaluations that have been done to determine
the feasibility of the project. Both our plans have the same number of wells and
production rate. Only the difference is for transportation facility.

Production rate, BPD


50,000.00
45,000.00
40,000.00

35,000.00
30,000.00
25,000.00
Production rate, BPD

20,000.00
15,000.00
10,000.00
5,000.00
2036

2035

2034

2033

2032

2031

2030

2029

2028

2027

2026

2025

2024

2023

2022

2021

2020

2019

2018

2017

0.00

Figure 6: Production rate for both plan

Plan A
NPV (Billion)
IRR
Payback Period

RM 6.893
32%
3 years
Table 2: Plan A

Project Net Cash Flow


economic life

10,000,000,000.00
8,000,000,000.00
6,000,000,000.00

payback period
economic limit year

4,000,000,000.00
2,000,000,000.00
(2,000,000,000.00)
(4,000,000,000.00)

maximum sink cost


Net Cash Flow Plan A, RM

Cummulative Net Cash Flow Plan A, RM

Figure 7: Project Net Cash flow for Plan A

Contractor Net Cash Flow


4,000,000,000.00

economic life

3,000,000,000.00
2,000,000,000.00

payback period
economic limit year

1,000,000,000.00
(1,000,000,000.00)
(2,000,000,000.00)

maximum sink cost


(3,000,000,000.00)
Net cash flow after tax Plan A, RM

Cumulative net cash flow Plan A, RM

Figure 8: Contractor Net cash flow for Plan A

Petronas Net Cash Flow


6,000,000,000.00
5,000,000,000.00
4,000,000,000.00
3,000,000,000.00
2,000,000,000.00
1,000,000,000.00
-

Net cash flow after tax, RM

Cumulative net cash flow, RM

Figure 9: Petronas cash flow for plan A

NPV Project Cash Flow


RM3,000,000,000.00
RM2,500,000,000.00
RM2,000,000,000.00

RM1,500,000,000.00
NPV Plan A
RM1,000,000,000.00
RM500,000,000.00
RM0.00
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
(RM500,000,000.00)
Figure 10: NPV Project Cash Flow for Plan A

NPV Contractor Cash Flow


RM800,000,000.00
RM600,000,000.00
RM400,000,000.00
RM200,000,000.00

NPV Plan A

RM0.00
10%

20%

30%

40%

50%

60%

70%

80%

(RM200,000,000.00)
(RM400,000,000.00)
Figure 11: NPV Contractor cash flow for Plan A

90% 100%

NPV Petronas Cash Flow


RM2,500,000,000.00

RM2,000,000,000.00

RM1,500,000,000.00
NPV Plan A
RM1,000,000,000.00

RM500,000,000.00

RM0.00
10%

20%

30%

40%

50%

60%

70%

80%

Figure 12: NPV Petronas cash flow for Plan A

90% 100%

Plan B
NPV (Billion)
IRR
Payback Period

RM 5.671
17%
4 years
Table 3: Plan B

Project Net Cash Flow


6,000,000,000.00

economic life

5,000,000,000.00
4,000,000,000.00

payback period

3,000,000,000.00

economic limit year

2,000,000,000.00
1,000,000,000.00
(1,000,000,000.00)
(2,000,000,000.00)
(3,000,000,000.00)
(4,000,000,000.00)

maximum cost sink


Net Cash Flow Plan B, RM

Cummulative Net Cash Flow Plan B, RM

Figure 13: Project Net Cash Flow for Plan B

Contractor Net Cash Flow


economic life

4,000,000,000.00

payback period

2,000,000,000.00

economic limit year

(2,000,000,000.00)

maximum sink cost


(4,000,000,000.00)
Net cash flow after tax Plan B, RM

Cumulative net cash flow Plan B, RM

Figure 14: Contractor Net Cash Flow for Plan B

Petronas Net Cash Flow


6,000,000,000.00
5,000,000,000.00
4,000,000,000.00
3,000,000,000.00

2,000,000,000.00
1,000,000,000.00
-

Net cash flow after tax, RM

Cumulative net cash flow, RM

Figure 15: Petronas Net Cash Flow for Plan B

Project Cash Flow


RM1,000,000,000.00
RM800,000,000.00
RM600,000,000.00
RM400,000,000.00
RM200,000,000.00

NPV Plan B

RM0.00
(RM200,000,000.00)

10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

(RM400,000,000.00)
(RM600,000,000.00)
(RM800,000,000.00)
Figure 16: NPV Project cash flow for plan B

NPV Contractor Cash Flow


RM600,000,000.00
RM400,000,000.00
RM200,000,000.00
RM0.00
10%

20%

30%

40%

50%

60%

70%

80%

90% 100%

NPV Plan B

(RM200,000,000.00)
(RM400,000,000.00)
(RM600,000,000.00)
(RM800,000,000.00)
Figure 17: NPV Contractor cash flow for Plan B

NPV Petronas Cash Flow


RM2,500,000,000.00

RM2,000,000,000.00

RM1,500,000,000.00
NPV Plan B
RM1,000,000,000.00

RM500,000,000.00

RM0.00
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Figure 18: NPV Petronas cash flow for Plan B

11.0 SENSITIVITY ANALYSIS


A sensitivity analysis reveals how much the Net Present Value (NPV) change in
response to a given change in put variables. Some items have a greater influence to the
final results than others. By doing the sensitivity analysis, we may easily identify the
most significant items. In this evaluation there are 4 items or parameters. There are gas
price, capital cost (CAPEX) and operating cost (OPEX). Since we deal with a lot of
uncertainties, the possible range can up to +/- 50% for beginning stage due to lack of
data. This range can reduce to +/- 15% after further appraisal data gathered.

Plan A
Items

Risk Rate
-50%
-20%
Oil Price Plan A
0%
20%
50%
-50%
-20%
Production Rate Plan A
0%
20%
50%
-50%
-20%
CAPEX Plan A
0%
20%
50%
-50%
-20%
OPEX Plan A
0%
20%
50%

NPV
2,306,868,901.96
5,058,813,037.56
6,893,442,461.30
8,728,071,885.03
11,480,016,020.64
2,306,868,901.96
5,058,813,037.56
6,893,442,461.30
8,728,071,885.03
11,480,016,020.64
7,617,380,926.06
7,183,017,847.20
6,893,442,461.30
6,603,867,075.39
6,169,503,996.53
7,309,356,325.23
7,059,808,006.87
6,893,442,461.30
6,727,076,915.73
6,477,528,597.37

Table 4: Sensitivity analysis of NPV for plan A

Sensitivity Analysis Plan A


14,000,000,000.00
12,000,000,000.00
10,000,000,000.00
8,000,000,000.00

Oil Price Plan A

6,000,000,000.00

Production Rate Plan A

4,000,000,000.00

CAPEX Plan A

2,000,000,000.00

OPEX Plan A

0.00
-60%

-40%

-20%

0%

20%

40%

60%

Percentage

Figure 19: Sensitivity analysis for plan A

Plan B
Items

Risk Rate
-50%
-20%
Oil Price Plan B
0%
20%
50%
-50%
-20%
Production Rate Plan B
0%
20%
50%
-50%
-20%
CAPEX Plan B
0%
20%
50%
-50%
-20%
OPEX Plan B
0%
20%
50%

NPV
1,084,644,774.95
3,836,588,910.56
5,671,218,334.30
7,505,847,758.03
10,257,791,893.64
1,084,644,774.95
3,836,588,910.56
5,671,218,334.30
7,505,847,758.03
10,257,791,893.64
6,585,620,812.15
6,036,979,325.44
5,671,218,334.30
5,305,457,343.16
4,756,815,856.44
6,507,780,248.64
6,005,843,100.03
5,671,218,334.30
5,336,593,568.56
4,834,656,419.95

Table 4: Sensitivity analysis for plan B

Sensitivity Analysis Plan B


12,000,000,000.00
10,000,000,000.00

8,000,000,000.00
Oil Price Plan B

6,000,000,000.00

Production Rate Plan B

4,000,000,000.00

CAPEX Plan B

2,000,000,000.00

OPEX Plan B

0.00
-60%

-40%

-20%

0%

20%

40%

60%

Percentage

Figure 20: Sensitivity analysis for plan B

From the sensitivity analysis result it clearly shows that when the CAPEX and
OPEX decrease, the NPV and IRR will increase however when the gas price decrease
the NPV and IRR will also decrease.
Oil price is the most sensitive parameters followed by CAPEX and OPEX. Since
our revenue depends on oil sales, large decrease in oil price or in production rate up to
50% would not have a high impact (negative) to the NPV.
Nevertheless, if we over estimated up CAPEX or OPEX up to 50% the NPV will
not be negative.
When choosing among mutually exclusive projects or features of the same
project, NPV, IRR and payback period should be compared for each options in order to
arrive at the best economic alternative.
From the result obtained, the most profitable method to operate the field of
interest is Plan A because it gives the highest percentage of Internal Rate of Return
(IRR) compared to other projects.

12.0 Comparison for Both Plan

Project Net Cash Flow


20,000,000,000.00
15,000,000,000.00
10,000,000,000.00
5,000,000,000.00
(5,000,000,000.00)
(10,000,000,000.00)
Net Cash Flow Plan A, RM

Net Cash Flow Plan B, RM

Cummulative Net Cash Flow Plan A, RM

Cummulative Net Cash Flow Plan B, RM

Figure 21: Project Net Cash Flow Both Plan

Contractor Net Cash Flow


8,000,000,000.00
6,000,000,000.00
4,000,000,000.00
2,000,000,000.00
(2,000,000,000.00)
(4,000,000,000.00)
(6,000,000,000.00)
(8,000,000,000.00)
Net cash flow after tax Plan A, RM

Net cash flow after tax Plan B, RM

Cumulative net cash flow Plan A, RM

Cumulative net cash flow Plan B, RM

Figure 22: Contractor Net Cash Flow for Both Plan

Petronas Net Cash Flow


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
-

Net cash flow after tax, RM

Net cash flow after tax, RM

Cumulative net cash flow, RM

Cumulative net cash flow, RM

Figure 23: Petronas Net Cash Flow for Both Plan

NPV Project Cash Flow


RM4,000,000,000.00
RM3,500,000,000.00
RM3,000,000,000.00
RM2,500,000,000.00

RM2,000,000,000.00

NPV Plan B

RM1,500,000,000.00

NPV Plan A

RM1,000,000,000.00
RM500,000,000.00
RM0.00

(RM500,000,000.00)

10%

20%

30%

40%

50%

60%

70%

80%

(RM1,000,000,000.00)
Figure 24: NPV Project cash flow for both plan

Internal Rate of Return Plan A


Internal Rate of Return Plan B

32%
17%

90% 100%

NPV Contractor Cash Flow


RM1,500,000,000.00
RM1,000,000,000.00
RM500,000,000.00

NPV Plan B
NPV Plan A

RM0.00
10%

20%

30%

40%

50%

60%

70%

80%

90% 100%

(RM500,000,000.00)
(RM1,000,000,000.00)
Figure 25: NPV Contractor cash flow for both plan

Internal Rate of Return Plan A


Internal Rate of Return Plan B

19%
14%

NPV Petronas Cash Flow


RM4,500,000,000.00
RM4,000,000,000.00
RM3,500,000,000.00
RM3,000,000,000.00
RM2,500,000,000.00

NPV Plan B

RM2,000,000,000.00

NPV Plan A

RM1,500,000,000.00
RM1,000,000,000.00
RM500,000,000.00
RM0.00

10%

20%

30%

40%

50%

60%

70%

80%

90% 100%

Figure 26: NPV Petronas cash flow for both plan

Since Petronas did not invest in project, therefore NPV of Petronas Cash Flow will
always be positive. The rate of return for both plan is infinity.

Sensitivity Analysis Plan A and Plan B


14,000,000,000.00
12,000,000,000.00

Oil Price Plan A

10,000,000,000.00

Production Rate Plan A

8,000,000,000.00

CAPEX Plan A

6,000,000,000.00

OPEX Plan A

4,000,000,000.00

Oil Price Plan B

2,000,000,000.00

Production Rate Plan B


CAPEX Plan B

0.00
-60%

-40%

-20%

0%

20%

40%

60%

Percentage

Figure 27: Sensitivity analysis for plan A and B

OPEX Plan B

13.0 Decision Making

When choosing among mutually exclusive projects or features of the same


project, NPV, IRR, and payback period should be computed 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 result obtained, the most profitable method for operated the field of
interest is the plan A. It means that, the company is suggested to operate or built up
their own pipeline the offshore of Sarawak. Plan A gives the highest percentages of
Internal rate of Return (IRR) compared the other projects.

14.0 CONCLUSION
Based on the result, the most feasible plan is Plan A based on this evaluation,
we assume that based on the PSC, PETRONAS want the optimum production for 14
Years which mean here only Plan A is suitable. Furthermore, plan A gives very high
NPV and high IRR as compared with plan B.
NPV (Billion)

RM 6.893

IRR

32%

Payback period

4 years

Table 5: Table Plan A

At the conclusion of our evaluation of the Field Development Project planning for
the oil operation of transportation methods to onshore we were agreed with the Plan A.
The plan A is suggested about the constructing their own oil pipeline from the offshore
platform operation to the terminal which operated by company properties. While for the
Plan B, the renting cost of FPSO for operation is about RM 15,000 per day for 14 years
operation will cost a lot and is shown that it is has the lowest percentage of profit
income.
As the platform is located in the offshore of Sarawak with the specific latitude and
longitudes, the nearest terminal is located located in Miri which is known as Bintulu
Crude Oil Terminal. The distance between the platform and the terminal is about 125.12
km.
Next, the economic evaluation parameters involved in this projects are acting as
the control variable for decision making for choosing the right and the most preferable
methods that will result in high profitable income for both contractor and company itself.
The most important parameters are Net cash flow diagram, payback period, net present
value (NPV) and also the Internal Rate of Return which are known as the time function
for predicting the future profitable income and also important for investment process for
the future project operation.

14.0 REFERENCES

1.

Frank Jahn, Mark Cook and Mark Graham Development In Petroleum Science (
Vol 46 ), Hydrocarbon Exploration and Production, TRACS International Ltd,
Falcon House, Union Grove Lane, Aberdeen, AB10 6XU, United Kingdom

2.

Sulaiman Abdullah ,Gas Pricing Fundamental of Natural Gas, Paper presented


at the Malaysian Gas Program 20th May 1998, Kuala Lumpur, 20 21st May
1998

3.

Ahmad Hussain et.al. Reservoir Management of the Dulang Oil Field, Offshore
Peninsular Malaysia: The Heuristic Approch, SPE paper

4.

Leland Blank, P. E, Texas A&M University and Anthony Tarquin, P. E, University


of Texas at El Paso, Engineering Economy Forth Edition

5.

Engineering Economy: A Managers Guide to Economic Decision Making, Third


Edition, American Telephone and Telegraph Company, Construction Plans
Department.

6.

En Azmi Mohd Arshad, Evaluation and Economic Management of Petroleum


Project Petroleum Engineering Department, Faculty Chemical Engineering and
Energy Engineering, UNIVERSITI TEKNOLOGI MALAYSIA.

15.0 APPENDICES
PSC 1985
Gov Profit
Cont. Profit
Duty
Tax
Royalty
Cost Oil Ceiling
Research Cess

10kBPD
50%
50%
25%
45%
10%
50%
0.50%

10kBPD
>20kBPD
60%
70%
40%
30%
of profit oil

of cont. pro. oil

$1=
RM4.00
Depreciation= 0.38 , b=0.6

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