Abstract

The integration of parametric and nonparametric Monte Carlo risk analysis techniques with:- * EDNP (Expected Discounted Net Profit) Analysis * Advanced Tax Analysis Techniques * Tailored Product Design * Appropriate cost and production structures.

can be used to rapidly:- * Screen acreage and geological plays * Define the risk-return relationships associated with future exploration * Determine the optimum values for interest swaps, sale, purchase, farmin/farmouts, and work programbids * Screen different development options * Determine commercial success risks and economic return variance * Determine the impact of significant oil/gas price changes on the relative profitability and risk-return relationships of different areas of the North Sea.

In the UK North Sea, a Monte Carlo EDNP analysis has been used to demonstrate how the technique can be used to rapidly:- * Assess exploration acreage * Identify exploration risk-return relationships and identity under exploited plays * Assess the impact of changing cost structures on afield's net return * Assess the relative worth of production units, fields, and acreage for acquisition and divestment.

Introduction

The purpose of this paper is to summarise a cost effective, profit based Monte Carlo economic screening tool which can be used to rapidly screen different investment/divestment options. This tool is based on real Expected Discounted Net Profit (EDNP) and can supplement or replace existing valuation criterion.

Its characteristics are:- * It will allow rapid screening project economics to be undertaken interactively by explorationists, engineers, or managers, without additional input from other departments. This can result insubstantial manpower and cost savings. Anticipated cost and time savings resulting from use of the EDNP approach are compared with atraditional detailed cashflow based Expected Monetary Value (EMV) analysis in Table 1 for the UK 12th Licensing Round. Similar time savings are likely for international licence rounds (e.g. USA, Indonesia, USSR, etc.), and other types of economic decisions. * Its values can be linked directly to market values, Net Present Values (NPV) and Expected Monetary Values (EMV). * It can be applied to projects where limited data is available (e.g. production profiles or cost disbursements are not known). * It will allow standardized economic analyses and decisions to be made. * It uses a simple method of constructing robust, resistant, and repeatable statistical data distributions. * Most of the required data items can be stored in databases which are not project specific.

The tool can be applied to:- * Acreage screening studies (e.g. licence round) * Prospect/project screening studies * Farmin/farmout terms formulation * Work Program Bid formulation * Gash bid formulation for acreage, production and fields * The formulation of fiscal terms for production sharing contracts * Acreage, field and production swaps * Assessing the impact of oil/gas price changes and tax rate changes on project value and viability.

P. 163

This content is only available via PDF.
You can access this article if you purchase or spend a download.