Project Management in the Oil and Gas Industry

NPV
IRR
Figure 2.3 Calculate IRR.

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Project Economic Analysis 49
Every company should have defined their own minimum rate of return 
(MIRR). This rate is internal and specific to each company. For most inter-
national petroleum companies with branches in more than one country 
around the world, that number varies from country to country.
This number is determined after studies and much research specific to 
each country according to the description of the political, social, and eco-
nomic condition of that country. For example, investing in England or the 
USA is certainly different from Sudan or Nigeria and other African coun-
tries that do not have any political stability.
The internal minimum of return number is a secret and confidential 
number for each company as these numbers govern their investment.
2.2.4 Payout 
Method
This method is the fastest and easiest way to calculate the time required 
to recover the invested money in the project, but it cannot account for 
the project interest rate of return. Calculating the time period is simple, as 
shown in Figure 2.4.
The time required to recover the money invested is called payout time 
and is also known as a time period equal to the cost of the project with 
the return of the project. This factor depends on the expertise of the 
decision-maker, as this is a very important factor in a country with no 
political stability and requires that the project decision-maker be able to 
recover the capital in the shortest possible time.
The disadvantage of this method is that it cannot calculate the interest 
rate of return for a project, which varies according to each project and the 
Capital
investment
Project net
profit
Payout
time period
0
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