Revenues

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. 

Introduction and Commercial Application The reservoir and well behaviour under dynamic conditions are key parameters in determining what fraction of the hydrocarbons initially in place will be produced to surface over the lifetime of the field, at what rates they will be produced, and which unwanted fluids such as water are also produced. This behaviour will therefore dictate the revenue stream which the development will generate through sales of the hydrocarbons. The reservoir and well performance are linked to the surface development plan, and cannot be considered in isolation different subsurface development plans will demand different surface facilities. The prediction of reservoir and well behaviour are therefore crucial components of field development planning, as well as playing a major role in reservoir management during production. 

Artificial lift systems are mostly required later in a field s life, when reservoir pressures decline and therefore well productivities drop. If a situation is anticipated where artificial lift will be required or will be cost effective later in a field s life, it may be advantageous to install the artificial lift equipment up front and use it to accelerate production throughout the field s life, provided the increased revenues from the accelerated production offset... 

Maintenance costs account for a large fraction of the total operating expenditure (opex) of a project. Because of the bath tub curve mentioned above, maintenance costs typically increase as the facilities age just when the production and hence revenues enter into decline. The measurement and control of opex often becomes a key issue during the producing lifetime of the field as discussed in Section 14.0. However, the problem should be anticipated when writing the FDP. 

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. 

Once production commences (possibly 3-8 years after the first capex) gross revenues are received from the sale of the hydrocarbons. These revenues are used to recover the capital expenditure (capex) of the project, to pay for the operating expenditure (opex) of the project (e.g. manpower, maintenance, equipment running costs, support costs), and to provide the host government take which may in the simplest case be in the form of taxes and royalty. 

For any one case, say the base case, the project cashflow is constructed by calculating on an annual basis the revenue items (the payments received by the project) and then subtracting the expenditure items (the payments made by the project capex, opex and host government take). For each year the balance is the annual cash surplus (or cash deficit). Flence, on an annual basis... 

Typical revenue and expenditure items are summarised in the following table ... 

Royalty is normally charged as a percentage of the gross revenues from the sale of hydrocarbons, and may be paid in cash or in kind (e.g. oil). The prevailing oil price is used. 

Prior to the calculation of tax, certain allowances may be made against the gross revenue before applying the tax rate. These are called fiscal costs and commonly include the royalty, opex and capital allowances (which is explained later in this section). Fiscal costs may also be referred to as deductibles. 

These are deducted from the gross revenues prior to applying the tax rate. 

Royalty is charged from the start of production, but tax is only payable once there is a positive taxable income. At the beginning of a new project the fiscal costs may exceed the revenues, giving rise to a negative taxable income. Whether the project can take advantage of this depends upon the fiscal status of the company and the project. 

Capital allowances may be accepted as soon as the capital Is spent or may have to wait until the asset is actually brought into use. In the case of the newcomer company or the ring-fenced project the allowance may only be able to commence once there is revenue from the project. 

A newcomer company Is a company performing its first project in the country, and therefore has no revenues against which to offset capital allowances. 

A project is ring-fenced if, for fiscal purposes, its fiscal costs can only be offset against revenues earned within that ring fence. 

The project cashflow s constructed by performing the calculation for every year of the project life. Atypical project cashflow is shown in Figure 13.9, along with a cumulative cashflow showing how cumulative revenue is typically split between the capex, opex, the host government (through tax and royalty) and the investor (say the oil company). The cumulative amount of money accruing to the company at the endof the project is the cumulative cash surplus or field life net cash flow. 

From the cash flow and cumulative cashflow some basic economic indicators can be determined. The cashflow determines the economic lifetime of the field. When the cashflow turns permanently negative due to decreasing revenues (e.g. revenues are... 

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. 

As a field matures, bottlenecks may appear in other areas, such as water treatment or gas compression processes, and become factors limiting oil or gas production. These issues can often be addressed both by surface and subsurface options, though the underlying justification remains the same the NPV of a debottlenecking exercise (net cost of action versus the increase in net revenue) must be positive. 

The first methanol bus in the world was placed in revenue service in Auckland, New Zealand in June 1981. It was a Mercedes O 305 city bus using the M 407 hGO methanol engine. This vehicle operated in revenue service for several years with mixed results. Fuel economy on an equivalent energy basis ranged from 6 to 17% mote than diesel fuel economy. Power and torque matched the diesel engine and drivers could not detect a difference. ReHabiUty and durabihty of components was a problem. Additional demonstrations took place in Berlin, Germany and in Pretoria, South Africa, both in 1982. 

In 1987 Seatde Metro purchased 10 new American built M.A.N. coaches powered by methanol. Six GM buses powered by DDC methanol engines entered revenue service at Triboro Coach in Jackson Heights, New York, 2 GM buses in Medicine Hat Transit in Medicine Hat, Manitoba, and 2 Flyer coaches in Winnipeg Transit, Winnipeg, Manitoba, Canada. An additional 45 DDC powered methanol buses were introduced in California as indicated by Table 4. Figure 11 shows the distance accumulation of alternate-fueled buses in the four California transit properties. 

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