Project Management in the Oil and Gas Industry

Dry
No drill
Drill
Figure 2.20 Case study one.
0.8
0.5
0.5
0.1
0.01
110
1.1
3.0
0.6
0.4
1.2
0.3
–4.8
50
20
40
20
10
–6
0.06
0.03
0.01
0.06
0.03
0.80
1.0
1.8
1
2
3
4
5
6
7
0.6
0.3
0.1
0.6
0.3
No delay
Delay
2 years
0.2
Dry
P PV = EPV
Figure 2.21 Case study two.

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74 Project Management in the Oil and Gas Industry
that permit administrative bureaucracy where the delay is a result of 
administrative work for foreign permits and correspondence papers or 
for the equipment for customs paper work. This is an example where the 
auger is not available and this is something that will have an impact on 
the accounts of the present value of investment, as in the following exam-
ple. It is clear that the number of decision-making trees depends primar-
ily on the experience, as it considers all the possible problems that can be 
urged as well as prospects. 
Figure 2.22 presents another example for constructing a new facil-
ity and you may cancel this project or go through the appraise phase 
(conceptual design). The possible outcomes from the study are that you 
will need a plant or not. Due to production, there are three possible 
outcomes: abandon the facility, make no modifications, or modify the 
facility. 
The decision tree is very easy to use, but the problem is how to calculate 
the probability for every event. You can assume the probability value using 
your experience, but it will affect the result. 
The most proper way to calculate this probability is by using the Monte-
Carlo simulation technique. In every case, start by building a model for a 
reservoir in an oil and gas project, and define the mean, standard deviation, 
and the probability distribution that are present in the reservoir model, 
such as area, height, porosity and others parameters. At the same time, 
build the model for the present value calculation and define the parameters 
for each variable.
1
2
3
4
5
0.47 238 = 111.8
0.11 140 = 15.4
0.14 10 = 1.4
0.08 –113 = –9.0
0.02
–31 = –6.2
1.00
113.4
t
t + 3
t + 7
t + 15
Cancel project
No plant
Construct
initial
facility
Appraise
phase
0.20
0.80
0.90
0.10
0.65
0.15
0.20
Modify
facility
Abandon
facility
No
modification
P PV = EPV
Figure 2.22 Case study three.

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Project Economic Analysis 75