Offshoring investment

In 1986 when the oil price crashed to 10 a barrel, operators began to look very hard at the requirements for offshore developments and novel slimline, reduced facilities platforms began to be considered. The reduced capital outlay and early production start up capability, coupled with the added flexibility, ensured that all companies now consider subsea systems as an important field development technique. Although the interest and investment in subsea systems increased dramatically, subsea systems still had to compete with the new generation of platforms, which were becoming lighter and cheaper. 

The Hydrocarbon Processing Industry (HPI), has traditionally been reluctant to invest capital where an immediate direct return on the investment to the company is not obvious, as would any business enterprise. Additionally financial fire losses in the petroleum and related industries were relatively small up to about the 1950 s. This was due to the small size of facilities and the relatively low value of oil and gas to the volume of production. Until 1950, a fire or explosion loss of more than 5 million U. S. Dollars had not occurred in the refining industry in the USA. Also in this period, the capital intensive offshore oil exploration and production industry were only just beginning. The use of gas was also limited early in the century. Consequentially its value was also very low. Typically production gas was immediately flared or the well was capped and considered as an uneconomical reservoir. Since gas development was limited, large vapor explosions were relatively rare and catastrophic destruction from petroleum incidents was essentially unheard of. The outlays for petroleum industry safety features were traditionally the absolute minimum required by governmental regulations. The development of loss prevention philosophies and practices were therefore not effectively developed within the industry. 

The most expensive initial investment of any capital project is the investment in space to provide a facility. For onshore on offshore facilities the amount a space a facility occupies directly corresponds to increased capital costs, however these should still be balanced with the need for adequate separation, segregation and arrangement protection principles. 

Generally offshore facilities and major process plants onshore represent considerable capital investment and have a high number of severe hazards associated with them (blowouts, ship collisions, line and vessel ruptures, etc.). They normally cannot be easily evaluated with a simple safety checklist approach. Some level of "quantifiable evaluation" reviews are usually prepared to demonstrate that the risk of these facilities is within public, national, industry and corporate expectations. 

Currently, there are two F-T plants operating on offshore methane. The first one is the Shell Bintuli plant in Malaysia, which produces 15000 barrels per day. The second one is the Moss Bay plant (PetroSA) located in South Africa. Recently, Sasol/Chevron, ExxonMobil and Shell announced major investments in F T GTL plants. In addition, there are many small (mainly for local markets) and large (mainly for export) project proposals for F-T GTL projects on the table. Most of the large project proposals are in the Middle East... 

Under the terms of the Gas Protocol, all ACG natural gas delivered to SOCAR has priority over all non-associated natural gas, including both Shakh Deniz and inports. This measure is designed to maximize continuing oil production, to the benefit of the partners and the Government, in the event of the loss of the ability to re-inject associated natural gas production offshore. The management of this requirement effectively, implies a need for significant planning and investment. 

The breakdown of the investment cost for large-scale LNG plants may vary depending on the plant specification. A representative scope for a typical greenfield plant located to the Middle East for offshore production with an onshore LNG plant having two liquefaction trains shows that the LNG plant per se would account for roughly 50% of the total project, almost... 

Economics Variable production cost is dominated by feedstock pricing, especially for natural gas. The installed plant cost is the other main contributor to the total product cost. Total energy usage for a self-contained plant is typically around 7.8 Gcal/ton of methanol (31 MMBtu/ton) on an LHV basis. Capital investment varies tremendously with size and location however, a guideline installed cost for a 3,000-tpd plant is approximately U.S. 250-300 million. Synetix s LCM process offers improved economics over conventional processes. It is ideal for large capacities (over 3,000 tpd) where conventional plants cannot be used, such as, offshore production. 

Higher oil and gas prices have been beneficial for the Russian economy. In 2003, the average price per barrel for Russian crude rose from 21 in 2002 to more than 43 a barrel in October of 2004. This increase has contributed to higher-than-expected tax revenues and a surge in corporate profits, which in turn have boosted investment. However, much of the benefit from higher revenues from oil and gas exports has been kept offshore, as Russians increased capital exports and the Central Bank of Russia has piled up reserves. 

The company was rescued, thanks to high investments outside of the Middle East. Since the early 1980s, British Petroleum has developed many more oil and gas fields in the North Sea. Among these have been, in the UK sector, Magnus, the Village gas fields at Miller and Bruce and, in Norwegian waters, Ula and Gyda. In Alaska, the construction of the Trans-Alaska Pipeline System enabled the Prudhoe Bay field to come on stream in 1977. In 1981, the Kuparuk field also started production, and towards the end of 1987, the world s first continuous commercial production was recorded from an offshore area in the Arctic when the Endicott field was commissioned. 

Wind resources are abundant in Europe, in particular in Northern Europe and in mountain areas. The vast offshore wind resources in the Atlantic, the North Sea, and the Baltic Sea are only little exploited. Concerted investments in the necessary transmission grid and adapting the national electricity grids to smart grids will allow for more of this to enter the European market. 

Iyer R.R., Grossmann I.E., Vasantharajan S. and CuUick A.S. 1998. Optimal planning and scheduling of offshore oil field infrastructure investment and operations, Ind. Eng. Chem. Res., 37, 1380-1397. 

Taxes are largely immaterial for pension funds, foundations, endowments, and offshore investors because of their exempt status. Mean-variance asset allocation can be applied directly for these investors as already described. However, for domestic investors, taxes are a critical issue that must be considered in modeling investment choices. 

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