---

INPUT   DATA

Title

Year	Oil-Rate	Oil-Price	Capital
	(BOPD)	($/bbl)	Cost($m)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

Annual Operating Cost		%
Royalty Rate		%
Profit Tax Rate		%
Discount Rate		%
Inflation Rate		%
Cost Recovery Limit		%

---

---

OUTPUT   VARIABLES   &   GRAPHS

Net Present Value (NPV)	$m
Internal Rate of Return	%
Payout Time	years
Payout Time (discounted)	years
NetValue/Investment
NPV/Investment (discounted)
Growth Rate	%

Year	Revenue	Capital	Operating	Royalty	Capital	Profit	Net Cash
	($m)	Cost($m)	Cost($m)	($m)	Recovery($m)	Tax($m)	($m)
1
2
3
:
:
19
20
Total
PV Total

Project Cash Flow Analysis (Oil)

Determination of the Profitability Indicators and Cash Flow Streams of an oilfield development project,
given the following input: time profiles of oil-production rates, oil-prices and capital outlay.

Let us assume a time-series of oil rates (q₁, q₂,…q_t…),  oil price (p₁, p₂,…p_t…),
capital expenditure (C₁, C₂,…C_t…),   over a planning horizon T years

where q_t = oil rate in year t,
     p_t = oil price in year t,
     C_t = capital cost in year t; t = 1,2,3…T.

And also given:
     σ = discount rate,
     r = royalty rate,
     α = profit tax rate,
     θ = annual operating cost factor,
     φ = annual capital recovery limit.

The Cash Flow Stream consists of the following derived series:

Oil Revenue REV_t in year t = q_t * p_t;

Royalty Payment ROY_t = REV_t * r

Annual Operating Cost is assumed to depend only on cumulative capital cost to date; For illustration, consider a 5-year plan, with $200m capex in year-1 and $100m in year-3, and an operating cost factor of 10%. The capex series is (200,0,100,0,0), the cumulative capex is (200,200,300,300,300). Therefore the opex series is (20,20,30,30,30).
Operating Cost OPC_t =
    

A generic profit tax model, consisting of the main elements in most of today's oil taxation regimes, is adopted. Taxable income is derived from revenue less all costs, including capital recovery. An annual limit is set on capital recovery, such that it does not exceed φ % of capital expenditure to date.

Capital Recovery CRV_t in year t =

Thus, Profit Tax PFT_t in year t =

Net Cash Flow NCF_t = REV_t - ROY_t - C_t - OPC_t - PFT_t

The Profitability Indicators are computed from the generalized relationship:

where Net Present Value NPV = γ, when λ = T and σ = discount rate;

     Internal Rate Of Return IRR = σ, when λ = T and γ = 0;

     PayOut Time = λ, when γ = 0 and σ = 0;

Variants of the above primary profitability indictors can be readily derived. For example,

Investment Efficiency IE = NPV/[Investment]

Finally, Growth Rate Of Return

BIBLIOGRAPHY

• Campbell, Jr. J.M., Campbell, Sr. J.M. & Campbell R.A.; Analysis And management Of Petroleum Investments; Publ. by CPS, Norman, Oklahoma, 1991
• Seba R.B.; Economics Of Worldwide Petroleum Production; OGCI Publ, Tulsa, 1998.