Petroleum Economics
Petroleum Economics
Petroleum Economics
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Other measures
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Major Players
Refinery Yields
Products Prices
Timing
Transportation
Other fees and Profit Margin
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NYMEX (New York Mercantile Exchange)
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Consistently the most reliable and most frequently
used in practice
Takes into account timing of future cash flow
Tells us how much an investment is better or
worse than putting money into the bank or some
alternative investment
Makes large projects more attractive than smaller
ones, no indication of investment efficiency.
Highly dependent on discount rate
It is the after tax return equivalent to putting an
investment in an interest bearing account.
Frequently used as an initial screening device
Tends to favour high initial earnings projects over
long-lived projects
Can produce multiple values, and ambiguous.
Could be difficult to calculate (trial and error)
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Indicates length of investment ³exposure´,
or break-down point of a project.
Easy to calculate and understand
It ignores the timing or variations of cash
flow before payback
Useful as an initial indicator of the merits of
a project
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defined as the net cash flow of the project
per dollar of capital investment
used as quick ³first look´ investment
criteria
excellent for ranking projects
highly dependent on discount rate
measures investment efficiency
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One-time costs usually incurred at the beginning of a
project. They are usually large expenditures incurred
several years before any revenue is obtained.
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Field labour cost
Maintenance cost
Office overhead
It can be fixed periodic/annual amount or can be variable and
determined as a function of production rate.
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In many projects worldwide, government take is
over 50% of net pre-tax cash flow. It includes:
Royalties
Profit Sharing
Taxes
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Net cash flow gives the forecasted actual money
spent and received. It correctly represents the size
and timing of cash flow.
= $264,000 - $110,000
= $154,000
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= 110,000/ 264,000/9
= 3.75 Years
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Project costs are uncertain
Schedules are uncertain
Scope of work is often uncertain
External factors are uncertain
But the project manager must never be uncertain.
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The range of values within which the actual value is
expected to fall
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Provision for variations to the basis of a plan or cost
estimate which are likely to occur and which cannot be
specifically identified at the time the plan or estimate was
prepared.
It provides an equal chance of over run or under run.
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Risk Identification
Risk Quantification
Risk Response Development
Risk Response Control
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