![]() However, from a financial point of view, there is another paradigm. Take care about this: a purely technical view is to define the asset lifetime as the period during which the asset can be used before it no longer functions as it should. The lifetime of any asset can be calculated in two ways. Compare between different projects.įor offshore projects, the FPSO is associated with a higher operating cost than more conventional platform structures, but in cases involving a lower lifetime of the reserve, which is called a margin field, it can be considered a good alternative. ![]() As engineers, this method can be very helpful, as the reserve and oil price are sometimes not known and cannot be assumed in addition, as an engineer it is required to discuss the alternatives when the partner is deciding whether to do the project.įig 3.2. In this case, the revenue can be eliminated and the comparison between the alternatives can be made from a strictly cost point of view and the lowest cost will be the best alternative. When it is desired to make a comparison between different options, then the revenue and oil price will be the same for all the alternatives. On the other hand, if the capital investment is 63,395.8 then NPV = 0 and there is no benefit if the capital cost is any higher, then the project will lose money. In this case the NPV is equal to 1610.80 USD, and the first project shows a better profit. For a successful outcome, it must always be kept in mind that this phase requires a strong vision and a competent estimator and economic specialists. Finally, the interest rate is calculated from the revenue and compared with the owner's value and the decision will be made based on the outcome. All the pertinent documents will be sealed and kept confidential, so as to keep them away from any competitors. Therefore the owner or the main partner is usually involved in the details of the feasibility study and has his economic team working on it. In the end, the owner is searching for the most profitable option. The economic analysis is the main method for evaluating and comparing between different project alternatives. The cost will also vary, as it depends on the country's laws and regulations. These are the general types to consider and the types are different from one country to another. There are several types of taxes, such as production taxes, sales taxes, property taxes, state or region income taxes, and corporate income taxes. The cost of taxes should be considered during estimation of the net cash flow. The value of the taxes varies by project, based on the country location. The indirect expenses include management salaries, computers, desks, and other usable equipment during project implementation. Operating expense (OPEX), which refers to the direct expense during operations, such as the cost of the workover or other activities, has a direct impact on the production. ![]() Revenue is a direct function of the volume of yearly production multiplied by the gas or oil price. NCF = revenue − OPEX + indirect expenses + overhead + taxes + depreciation
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