Feasibility

Test Your Knowledge

Quiz: Striking Gold or Digging a Dry Hole: Feasibility in Oil & Gas Projects

Instructions: Choose the best answer for each question.

1. What are the two primary aspects of feasibility in oil and gas projects?

a) Environmental impact and community relations b) Technical feasibility and business feasibility c) Regulatory compliance and safety d) Production volume and market demand

2. Which of the following scenarios would NOT be considered under the umbrella of technical feasibility?

a) Assessing the effectiveness of a new drilling technique for unconventional resources. b) Evaluating the financial viability of a proposed offshore platform construction. c) Determining the potential volume of oil recoverable from a discovered reservoir. d) Assessing the risks associated with drilling in a seismically active region.

3. Why are feasibility studies crucial for oil and gas companies?

a) To satisfy regulatory requirements before commencing a project. b) To identify potential risks and challenges before committing significant resources. c) To demonstrate the environmental friendliness of their operations. d) To gain public approval for their projects.

4. Which aspect of feasibility would primarily analyze the potential profitability of a project, considering factors like production costs, market price, and operational expenses?

a) Technical feasibility b) Business feasibility c) Environmental feasibility d) Social feasibility

5. Which of the following is NOT an example of how feasibility plays out in real-world oil and gas projects?

a) Assessing the environmental impact of a pipeline project. b) Determining the technological capabilities required for drilling in deep-sea environments. c) Evaluating the costs and potential returns of a carbon capture and storage initiative. d) Analyzing the feasibility of extracting oil from a shale formation using hydraulic fracturing.

Exercise: Feasibility Analysis for a New Oil Field

Scenario: You are a project manager for an oil and gas company evaluating the feasibility of developing a new oil field in a remote location. The field is estimated to hold a significant volume of oil, but it's located in a challenging environment with potential geological and environmental challenges.

Task: Based on the information provided in the text, create a preliminary feasibility analysis for this project. Address both technical and business feasibility aspects, highlighting potential risks and opportunities.

Instructions: * Technical Feasibility: * What are the potential technical challenges you might encounter in this remote location? * What technologies and expertise would be needed to overcome these challenges? * What are the potential risks associated with drilling in this specific environment? * Business Feasibility: * What are the potential costs involved in developing the oil field, including drilling, infrastructure, and transportation? * How would you assess the profitability of the project, considering the estimated oil reserves and market prices? * What are the potential regulatory and environmental hurdles you might face? * How would you address the challenges of a remote location, including logistics and workforce?

Note: This exercise is intended to stimulate critical thinking and provide a framework for applying the concept of feasibility to a real-world project. There is no single "correct" answer, and your analysis should reflect your understanding of the principles discussed in the text.

Techniques

Striking Gold or Digging a Dry Hole: Feasibility in Oil & Gas Projects

Chapter 1: Techniques

Feasibility studies in the oil and gas industry employ a range of techniques to assess both technical and business viability. These techniques often overlap and are used iteratively, refining the understanding of project feasibility as more data becomes available.

Technical Feasibility Techniques:

• Geological and Geophysical Surveys: Seismic surveys, well logging, core analysis, and geological modeling are crucial for understanding subsurface formations, reservoir characteristics (porosity, permeability, hydrocarbon saturation), and potential risks (faults, pressure gradients). These techniques help determine if hydrocarbons are present and if they can be extracted economically.
• Reservoir Simulation: Sophisticated software models simulate reservoir behavior under various extraction scenarios. This helps predict production rates, ultimate recovery, and the impact of different drilling and completion strategies.
• Engineering Assessments: This involves evaluating the feasibility of drilling, completion, and production operations. Factors considered include well design, equipment selection (drilling rigs, pumps, pipelines), and environmental impact. Specific analyses might include wellbore stability assessments, flow assurance studies (to predict and mitigate issues like wax deposition or hydrate formation), and production optimization studies.
• Environmental Impact Assessment (EIA): This is a critical step, evaluating the potential environmental consequences of the project and identifying mitigation strategies. It assesses impacts on air and water quality, flora and fauna, and potential risks of spills or accidents.
• Risk Assessment: A thorough risk assessment identifies and quantifies potential technical challenges and uncertainties, such as equipment failure, geological surprises, and regulatory hurdles. This often employs probabilistic methods to estimate the likelihood and potential impact of these risks.

Business Feasibility Techniques:

• Financial Modeling: This involves creating detailed financial models that project revenues, costs, and profitability over the project's lifespan. These models consider various scenarios, including variations in oil and gas prices, production rates, and operating costs. Key metrics include Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period.
• Market Analysis: This involves assessing the demand for the extracted hydrocarbons, identifying potential buyers, and analyzing market prices and price volatility. This informs the revenue projections in the financial model.
• Regulatory and Legal Analysis: This examines permits, licenses, and regulations relevant to the project. It ensures compliance and identifies potential delays or costs associated with regulatory approvals.
• Sensitivity Analysis: This involves testing the sensitivity of the financial model to changes in key assumptions, such as oil prices, production rates, and capital expenditures. This helps identify critical uncertainties and their impact on the project's feasibility.

Chapter 2: Models

Several types of models are used in oil and gas feasibility studies. These models are interconnected and often feed data into one another:

• Geological Models: 3D representations of subsurface geology, including rock properties, fluid distribution, and structural features. These are built using data from geophysical surveys and well logs.
• Reservoir Simulation Models: Complex mathematical models that simulate the flow of fluids in the reservoir under various operating conditions. These are used to predict production rates, ultimate recovery, and the impact of different development strategies. Examples include compositional reservoir simulators and black oil simulators.
• Financial Models: Spreadsheet-based or dedicated software models used to project revenues, costs, and profitability over the project's life cycle. These models often incorporate probabilistic elements to account for uncertainties in oil prices, production rates, and capital costs. Discounted cash flow (DCF) analysis is a common technique.
• Economic Models: These models analyze the overall economic viability of the project, considering factors such as inflation, exchange rates, and government policies.
• Environmental Models: These models predict the potential environmental impacts of the project, assisting in the EIA process.

Chapter 3: Software

A variety of specialized software is employed for oil and gas feasibility studies. Examples include:

• Geophysical and Geological Modeling Software: Petrel (Schlumberger), Kingdom (IHS Markit), and SeisSpace (CGG) are widely used for processing and interpreting seismic data, building geological models, and creating 3D visualizations.
• Reservoir Simulation Software: CMG (Computer Modelling Group), Eclipse (Schlumberger), and INTERSECT (Roxar) are industry-standard reservoir simulators used for predicting reservoir behavior and optimizing production strategies.
• Financial Modeling Software: Spreadsheet software like Microsoft Excel is commonly used, often with specialized add-ins for financial analysis. Dedicated financial modeling software packages also exist.
• Risk Assessment Software: Specialized software packages enable quantitative risk assessment, allowing for the simulation of various scenarios and the quantification of uncertainties.
• Environmental Modeling Software: Specialized software is used to model the potential environmental impact of various aspects of the project.

Chapter 4: Best Practices

Effective feasibility studies follow best practices to ensure accuracy, reliability, and transparency:

• Clearly Defined Scope and Objectives: A well-defined scope outlines the project's boundaries and objectives, specifying the aspects to be evaluated.
• Comprehensive Data Collection: Thorough data gathering from various sources is essential, encompassing geological, geophysical, engineering, and economic data.
• Robust Data Analysis: Rigorous statistical and analytical techniques are used to interpret data and account for uncertainty.
• Independent Verification: Independent review by experts helps ensure the accuracy and reliability of the study's findings.
• Transparent Reporting: Clear and concise reporting communicates the study's methodology, assumptions, and conclusions effectively.
• Iterative Process: Feasibility studies are often iterative, with findings from early stages informing subsequent analysis and refining the understanding of project viability.
• Scenario Planning: Exploring multiple scenarios (optimistic, pessimistic, and most likely) helps assess the project’s sensitivity to various factors.
• Collaboration: Effective communication and collaboration between geologists, engineers, economists, and other stakeholders are crucial for a successful feasibility study.

Chapter 5: Case Studies

(This chapter would include several case studies illustrating successful and unsuccessful feasibility assessments in different oil and gas contexts. For example, one case study could focus on a successful unconventional shale gas project, another on a failed deepwater exploration venture, and a third on the feasibility assessment of a carbon capture and storage project. Each case study would highlight the key techniques, models, and considerations that led to the outcome.) Specific examples would require detailed research into publicly available case studies.