Field development economics

Based on the results of the feasibility study, and assuming that at least one option is economically viable, a field development plan can now be formulated and subsequently executed. The plan is a key document used for achieving proper communication, discussion and agreement on the activities required for the development of a new field, or extension to an existing development. 

The production profile for oil or gas is the only source ofrevenueior most projects, and making a production forecast is of key importance for the economic analysis of a proposal (e.g. field development plan, incremental project). Typical shapes of production profile for the main drive mechanisms were discussed in Section 8.2, but this section will provide some guidelines on how to derive the rate of build-up, the magnitude and duration of the plateau, the rate of decline, and the abandonment rate. 

Sections 13.1 to 13.8 will deal mainly with the economics of a field development. Exploration economics is introduced in Section 13.8. The general approach to this section will be to look at an investment proposal from an operator s point of view. 

The field may enter into an economic decline when either income is falling (production decline) or costs are rising, and in many cases both are happening. Whilst there may be scope for further investment in a field in economic decline, it should not tie up funds that can be used more effectively in new projects. A mature development must continue to generate a positive cashflow and compete with other projects for funds. The options that are discussed in this section give some idea of the alternatives that may be available to manage the inevitable process of economic decline, and to extend reservoir and facility life. 

Introduction and Commercial Application Eventually every field development will reach the end of its economic lifetime. If options for extending the field life have been exhausted, then decommissioning will be necessary. Decommissioning is the process which the operator of an oil or natural gas installations will plan, gain approval and implement the removal, disposal or re-use of an installation when it is no longer needed for its current purpose. 

Mark Cook is a Reservoir Engineer and Petroleum Economist. He has worked on international assignments mainly in Tanzania, Oman, the Netherlands and the UK. His main focus is in economic evaluation of field development projects, risk analysis, reservoir management and simulation. After 11 years with a multinational company he co-founded TRACS International of which he is Technical Director. 

In the 1950s, a group of coryneform bacteria which accumulate a large amount of L-glutamic acid in the culture medium were isolated (21). The use of mutant derivatives of these bacteria offered a new fermentation process for the production of many other kinds of amino acids (22). The amino acids which are produced by this method are mostiy of the T.-form, and the desired amino acid is singly accumulated. Therefore, it is very easy to isolate it from the culture broth. Rapid development of fermentative production and en2ymatic production have contributed to the lower costs of many protein amino acids and to their availabiUty in many fields as economical raw materials. 

Another important issue for the operation of EOR is the temporal restriction in connection to the field development in the North Sea. A large number of fields whose development had been started in the 1970s are approaching the end of economic... 

These methods have been well developed in medical technology assessment as well as in other fields of economic research. However, there remain a number of methodological issues that confront investigators in economic evaluations of pharmaceutical therapies. This section reviews some of these issues as they arise in the design, analysis, and interpretation of pharmacoeconomic evaluations. 

A different type of economic study, initiated in 1969, used an empirical formulation to develop economic estimates of vegetation damage (6). On the thesis that hydrocarbon emissions are related to oxidant production, hydrocarbon emission data were collected from over 100 metropolitan areas in the United States. Reductions in crop yields were empirically related to these emissions, and the monetary values were calculated. The reliability of this technique was based on known effects of oxidants on crop species and on the known relationship between hydrocarbons and oxidants. There are disadvantages to the method used, and the results suffer from lack of field verification. However, the technique has obvious advantages such as ease of use and uniformity of results. It might be a prototype from which more accurate estimates can be developed. Results from two years of development are found in annual reports (6, 7) and show between 100-125 million dollars lost annually in the United States. 

Recognition of the anaerobic biodegradation process and its drivers is the first step in development of predictive models to understand tar distribution and location and has important consequences on the economics of field development. 

In recent years pharmacoeconomics has been used as a term to describe the identification, measurement and comparison of the costs and consequences of pharmaceutical products and services (Bootman et al 1996). As such, pharmacoeconomics focuses primarily on pharmaceuticals, and attempts to evaluate the economic and humanistic impact of drug therapy. Pharmacoeconomic tools are derived from a variety of sources, including the fields of economics and outcomes research. Quite often the pharmacoeconomist will bring to the development team skills and experience in quality of life, patient satisfaction and other patient-centered measures. Health economists and a pharmacoeco-nomists differ (while the terms are sometimes used interchangeably), in having stronger backgrounds in the theoretical and applied aspects of health economics, respectively. A researcher with solid... 

Theory of Games and Economic Behavior m. 1944. Various scholars have contributed to the development of game theory, and in the process, it has become useful for scholars and practitioners in a variety of fields, although economics and finance are the disciplines most commonly associated with game theory. 

As becomes clear below the three fields of economic, social and cultural development sometimes overlap. Putting the three terms into a self-determination context, one thing seems clear. The UN places great weight on free and democratic processes concerning political self-determination. It is therefore reasonable to expect that the processes in the other fields must meet the same requirements. 

Process economics for the manufacture of PHA have been estimated as part of the Process Economics Program (PEP). Since PHA is currently not produced on a large commercial scale, the economics are based on engineering estimates developed from patents in the field. Process economics have been modeled for three scenarios that have been considered for large scale production (2) ... 

A project division within Norskoil carries out project work. At the first decision gate (DGl), the market organisation of Norskoil, i.e. the client, commissions the project division to start up project work. Before-hand, the client has made the necessary initial evaluations of the potential resource basis of oil and gas and of the market. The scope of work of the feasibility study also has to be defined. This phase aims at demonstrating whether it is technically and economically feasible to develop the field. The project team establishes detailed reservoir models in order to assess the oil and gas reserves and to establish production rates over the field s expected lifespan (production profiles). In parallel, the project evaluates different field-development concepts such as fixed platforms, floating platforms and subsea developments for tie-in to existing platforms in the area. This evaluation is based on information about existing infrastructure, water depth, reservoir models, etc. The activities are documented in a Report of Commerciality. 

Having defined and gathered data adequate for an initial reserves estimation, the next step is to look at the various options to develop the field. The objective of the feasibility study is to document various technical options, of which at least one should be economically viable. The study will contain the subsurface development options, the process design, equipment sizes, the proposed locations (e.g. offshore platforms), and the crude evacuation and export system. The cases considered will be accompanied by a cost estimate and planning schedule. Such a document gives a complete overview of all the requirements, opportunities, risks and constraints. 

The type of development, type and number of development wells, recovery factor and production profile are all inter-linked. Their dependency may be estimated using the above approach, but lends itself to the techniques of reservoir simulation introduced in Section 8.4. There is never an obvious single development plan for a field, and the optimum plan also involves the cost of the surface facilities required. The decision as to which development plan is the best is usually based on the economic criterion of profitability. Figure 9.1 represents a series of calculations, aimed at determining the optimum development plan (the one with the highest net present value, as defined in Section 13). 

In the feasibility phase the project is tested as a concept. Is it technically feasible and is it economically viable There may be a number of ways to perform a particular task (such as develop an oil field) and these have to be judged against economic criteria, availability of resources, and risk. At this stage estimates of cost and income (production) profiles will carry a considerable uncertainty range, but are used to filter out unrealistic options. Several options may remain under consideration at the end of a feasibility study. 

Petroleum economics provides the tools with which to quantify and assess the financial risks involved in field exploration, appraisal and development, and allows a consistent approach with which alternative investments can be compared. The techniques are applied to advise management on the attractiveness of such investment opportunities, to assist in selecting the best options, and to determine how to maximise the value of existing assets. 

So far, the economics of developing discovered fields has been discussed, and the sensitivity analysis introduced was concerned with variations in parameters such as reserves, capex, opex, oil price, and project timing. In these cases the risk of there being no hydrocarbon reserves was not mentioned, since it was assumed that a discovery had been made, and that there was at least some minimum amount of recoverable reserves (called proven reserves). This section will briefly consider how exploration prospects are economically evaluated. 

Petroleum economics is used at exploration, appraisal and development stages of the field life, to help to make the following typical decisions ... 

The character of a satellite development has considerable implications for a mature field in decline, but will not always have a positive economic effect on the life of the host. The remainder of this section will address the advantages of incremental development from the perspective of managing decline. 

Whatever form of incremental development is considered, the benefits to the host facility should not be gained at the expense of reduced returns for the new project. Incremental and satellite projects can in many situations help to extend the production life of an old field or facilities, but care must be taken to ensure that the economics are transparent. 

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