Topics for final

1. Application of the Principles of Engineering Economics to Petroleum

Operations
WORKED EXAMPLE
From volumetric calculations, the recoverable reserves for a proposed well are
15 million barrels of oil. A joint venture agreement between the host
government and the IOC allows the host government 51% of the after tax profit.
Determine the host government take if the following economic conditions
prevail.
Oil price = $18 / bbl; Capex = $ 75 million; Opex = $ 30 million; Royalty = 20%;
Depreciation = $ 50 million; Tax rate = 75%.
SOLUTION
Revenue = 15 million x $18 = $ 270.00 million
Royalty (20% of Revenue) = 54.00 million **
Opex = 30.00 million
Capex = 75.00 million
Depreciation = 50.00 million
Before tax profit = 61.00 million
Tax (75%) = 45.75 million **
After tax profit = 15.25 million
JVA ( 51%) = 7.78 million **
HG take = 107.53 million
2. Classification of Reserves (SPE standard, definition of reserve types,
Reserves are those quantities of petroleum claimed to be commercially recoverable by
application of development projects to known accumulations under defined conditions.
Reserves must satisfy four criteria:
1. They must be discovered through one or more exploratory wells
2. They must be recoverable using existing technology
3. They must be commercially viable
 4. They must be remaining in the ground.
• Contingent resources: Estimated recoverable quantities from known accumulations that
do not fulfill the requirement of commerciality should be classified as contingent resources.
Contingent resources are those quantities of petroleum that are estimated, on a given date, to be
potentially recoverable from known accumulations, but which are not currently considered as
commercially recoverable.
• Ultimate recoverable resource (URR): The ultimate recoverable resource (URR) is the
total quantity of oil that will ever be produced, including the nearly 1 trillion barrels extracted to
date.
• Proved reserves: Proved reserves are reserves of petroleum that are confirmed with a
high degree of certainty, found by drilling operations and are Recoverable by means of current
technology. Proven reserves have a reasonable certainty of being recoverable under existing
economic and political conditions, and using existing technology. Industry specialists refer to
this as P90 (i.e. having a 90% certainty of being produced). Proved reserves are also known in
the industry as 1P.
• Probable reserves: Probable reserves are those reserves of petroleum that are nearly
certain but about which a slight doubt exists. Probable reserves are based on median estimates,
and claim a 50% confidence level of recovery. Industry specialists refer to this as P50 (i.e.
having a 50% certainty of being produced), Also referred to in the industry as 2P (proved plus
probable).
• Possible reserves: Possible reserves are those reserves of petroleum with an even greater
degree of uncertainty about recovery but about which there is some information. Possible
reserves have a less likely chance of being recovered than probable reserves. This term is often
used for reserves that are claimed to have at least a 10% certainty of being produced (P10).

3. Crude Oil Classification by density and API Gravity

Density and API Gravity
The use of density values has been advocated for quantitative application using a scheme
based on the American Petroleum Institute (API) gravity, which offers a wider scale of
values by which crude oil can be classified and priced. As indicated above, the density of
crude oil varies slightly from conventional crude to heavy crude.
Light crude oil is usually oil having API gravity above 30 or 35ᵒAPI. Medium crude oil falls
into the API gravity range is below these numbers. Heavy oil is considered to be those
petroleum-type materials that had gravity somewhat less than 20ᵒAPI, with the heavy oils
falling into the API gravity range 10 to 15ᵒ (e.g., Cold Lake crude oil = 12ᵒAPI) and bitumen
falling into the 5 to 10ᵒAPI range (e.g., Athabasca bitumen = 8ᵒAPI).
 However, the assignment of specific numbers to the classification of petroleum is fraught
with difficulty. Using such points of demarcation does not circumvent the question that must
arise when one considers a material having API gravity equal to 9.9 and one material having
API gravity equal to 10.1; nor does the point of demarcation make allowance for the
limitations of the accuracy of the analytical method. The use of one physical parameter, be it
API gravity or any other physical property for that matter, is inadequate to the task of
classifying conventional petroleum, heavy oil, and tar sand bitumen.

4. Pakistan Policy requirements to achieve objectives

In order to achieve the objectives, it is necessary for the Policy to:
• Provide stimuli for increasing exploration and production investment by
modifying current contacting terms and incentives while taking into
consideration the market conditions.
• Adopt licensing terms, conditions and processes to attract newcomers
including oil and gas majors and independents, National Oil Companies
(NOCS), and Pakistani private companies.
• Provide a balance between prices and incentives through the rationalization
of the pricing formula so as to suitably compensate exploration and
production risk.
• Implement pro-active Policy management.
• Successfully align the Policy with GOP’s objective to achieve maximum self
sufficiency in domestic energy resources for the larger public good.
• Provide a transparent and non-discriminatory licensing and contracting
system managed by DGPC.

5. the role of Petroleum economist in oil industry

Petroleum Engineering Economics
The Engineering economy and engineering economics or engineering economic analysis are
all used interchangeably to denote the study of the economics of engineering systems.
Engineering economy is an applied economics course. Since the application is engineering
systems this economics course is taught by engineering faculty.
As future engineers, no matter what type, you will sooner or later have to deal with problem
situations similar to the ones covered in this course. At the end of the course you will be
equipped with analytical skills that you can use to solve problems of an economic nature.
Role of the Petroleum Economist
To advise on the economic attractiveness of these opportunities, taking into account the many
uncertainties regarding reservoir behavior, development costs, future energy prices and
relationships with governments.
He will also be involved in some or all of the following activities:
- Lease Bidding
- Selection of "best" option
- Reporting
- Unitization discussions
- Fiscal changes
- Contracts

write relationship of the Petroleum Economist with other disciplines