Profits

What is the minimum selectivity of decane which must be achieved for profitable operation The values of the materials involved together with their molecular weights are given in Table 4.1. 

Hence the gas turbine is the most profitable in terms of energy costs. However,... 

The purpose of chemical processes is not to make chemicals The purpose is to make money. However, the profit must he made as part of a sustainable industrial activity which retains the capacity of ecosystems to support industrial activity and life. This means that process waste must be taken to its practical and economic minimum. Relying on methods of waste treatment is usually not adequate, since waste treatment processes tend not so much to solve the waste problem but simply to move it from one place to another. Sustainable industrial activity also means that energy consumption must be taken to its practical and economic minimum. Chemical processes also must not present significant short-term or long-term hazards, either to the operating personnel or to the community. 

Overall project profitability. The economics of the overall project should be evaluated at different stages during the. design to access whether the project is viable and whether major changes are needed. 

To evaluate design options and carry out preliminary process optimization, simple economic criteria are required. What happens to the revenue from product sales after the process has been commissioned The sales revenue first pays for fixed costs which are independent of the rate of production. Variable costs, which do depend on the rate of production, also must be met. After this, taxes are deducted to leave the net profit. 

As the design progresses, more information is accumulated. The best methods of assessing the profitability of alternatives are based on projections of the cash flows during the project life. ... 

The greater the positive NPV for a project, the more economically attractive it is. A project with a negative NPV is not a profitable proposition. 

The higher the value of the DCFRR for a project, the more attractive it is. The minimum acceptable value of the DCFRR is the market interest rate. If the DCFRR is lower than market interest rate, it would be better to put money in the bank. For a DCFRR value greater than this, the project will show a profit for a lesser value, it will show a loss. 

If the goal is to maximize profit, NPV is used. If the supply of capital is restricted (which is usual), DCFRR is used to decide which projects will use the capital most efficiently. 

The international debt crisis was brought about by Western bankers in search of quick profit and is now one of our most pressing problems. This book looks at the background and shows what we must do to avoid disaster. 

The objective of any exploration venture is to find new volumes of hydrocarbons at a low cost and in a short period of time. Exploration budgets are in direct competition with acquisition opportunities. If a company spends more money finding oil than it would have had to spend buying the equivalent amount in the market place there is little Incentive to continue exploration. Conversely, a company which manages to find new reserves at low cost has a significant competitive edge since it can afford more exploration, find and develop reservoirs more profitably, and can target and develop smaller prospects. 

The planning details will also allow the engineer to estimate the costs, which in combination with other data will allow an evaluation of the profitability of the project. 

At each stage of a field life cycle raw data has to be converted into information, but for the information to have value it must influence decision making and profitability. 

Appraisal activity, if performed, is the step in the field life cycle between the discovery of a hydrocarbon accumulation and its development. The role of appraisal is to provide cost-effective information with which the subsequent decision can be made. Cost effective means that the value of the decision with the appraisal information is greater than the value of the decision without the information. If the appraisal activity does not add more value than its cost, then it is not worth doing. This can be represented by a simple flow diagram, in which the cost of appraisal is A, the profit (net present value) of the development with the appraisal information is (D2-A), and the profit of the development without the appraisal information is D1. 

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). 

As discussed in Sections 13.0 and 14.0, the management of operating expenditure (opex) is a major issue, since initial estimates of opex are often far exceeded in reality, and may threaten the profitability of a project. Within the FDP, it is therefore useful to specify the system which will be used to measure the opex. Without measuring opex, there is no chance of managing it. This will involve the joint effort of production operations, finance and accounting, and the development managers. 

Cost Plus Profit contract all costs incurred by the contractor are reimbursed in full, and the contractor then adds an agreed percentage as a profit fee. 

Keywords economic model, shareholder s profit, project cashflow, gross revenue, discounted cashflow, opex, capex, technical cost, tax, royalty, oil price, marker crude, capital allowance, discount rate, profitability indicators, net present value, rate of return, screening, ranking, expected monetary value, exploration decision making. 

From an overall economic viewpoint, any investment proposal may be considered as an activity which initially absorbs funds and later generates money. The funds may be raised from loan capital or from shareholders capital, and the net (after tax and costs) money generated may be used to repay interest on loans and loan capital, with the balance being due to the shareholders. The shareholders profit can either be paid out as dividends, or reinvested in the company to fund the existing venture or new ventures. The following diagram indicates the overall flow of funds for a proposed project. The detailed cash movements are contained within the box labelled the project . 

The oil company s after-tax share of the profit is then available for repayment of interest on loans, distribution to the shareholders as dividends, or reinvestment on behalf of the shareholders in this or other projects. 

From the oil company s point of view, the balance of the money absorbed by the project (capex, opex) and the money generated (the oil company s after-tax share of the profit) yields the project cashflow. 

It should be noted that a capital allowance Is not a cashflow item, but is only calculated to enable the taxable income to be determined. The treatment of capital allowance for this purpose is a petroleum economics approach, which may differ from the accountant s view of depreciation when calculating net book values and profit. 

Typically, the contractor carries the cost of exploration, appraisal and development, later claiming these costs form a tranche of the produced oil or gas ( cost oil ). If the cost oil allowance is insufficient to cover the annual costs (capex and opex), excess costs are usually deferred to the following year. After the deduction of royalty (if applicable) the remaining volume of production (called profit oil ) is then split between the contractor and the host government. The contractor will usually pay tax on the contractor s share of the profit oil. In diagrammatic form the split of production for a typical PSC is shown in Figure 13.11. 

The point at which the cumulative cash flow turns positive indicates the payout time (or payback time). This is the length of time required to receive accumulated net revenues equal to the investment. This indicator says nothing about the cash flow after the payback time and does not consider the total profitability of the investment opportunity. 

A common ratio which indicates the profitability of a project is the... 

A similar form of indicator is the Profitability Index (PI), where the denominator is the maximum exposure of the project, and is applicable where the company is sensitive to the maximum exposure e.g. 

Another useful profitability indicator is the internal rate of return (IRR), already introduced in the last section. This shows what discount rate would be required to reduce the NPV to zero. The higher the IRR, the more robust the project is, i.e. the more risk it can withstand before the IRR is reduced to the screening value of discount rate. Screening values are discussed below. 

First we will look at the constraints in the above groupings, but they are most effectively managed In an Integrated approach, since they all act simultaneously on the profitability of the producing field. This requires careful planning and control by a centralised, integrated team, which will also be discussed. 

At the development planning stage, a reservoir mode/will have been constructed and used to determine the optimum method of recovering the hydrocarbons from the reservoir. The criteria for the optimum solution will most likely have been based on profitability and safety. The model Is Initially based upon a limited data set (perhaps a seismic survey, and say five exploration and appraisal wells) and will therefore be an approximation of the true description of the field. As development drilling and production commence, further data is collected and used to update both the geological model (the description of the structure, environment of deposition, diagenesis and fluid distribution) and the reservoir model (the description of the reservoir under dynamic conditions). 

The reservoir model will usually be a computer based simulation model, such as the 3D model described in Section 8. As production continues, the monitoring programme generates a data base containing information on the performance of the field. The reservoir model is used to check whether the initial assumptions and description of the reservoir were correct. Where inconsistencies between the predicted and observed behaviour occur, the model is reviewed and adjusted until a new match (a so-called history match ) is achieved. The updated model is then used to predict future performance of the field, and as such is a very useful tool for generating production forecasts. In addition, the model is used to predict the outcome of alternative future development plans. The criterion used for selection is typically profitability (or any other stated objective of the operating company). 

The cost of decommissioning may be considerable, and comes of course at the point when the project is no longer generating funds. Some source of funding will therefore be required, and this may be available from the profit of other projects, from a decommissioning fund set up during the field life or through tax relief rolled back over the late field production period. 

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