Oil&Gas Projects

Assessment, management and development

Appraise / Preappraise

Sometimes this stage is preceded by stage "Preappraise", it is called initiation. "The main objective of both stages is to find at least one investment-attractive option of the project, it is also called the most probable (P50) or the base case".  In addition to the base case are calculated optimistic (P10) and  pessimistic (P90) scenarios that allow us to estimate the stability of the base case to the realization of key uncertainties in the development concept of such uncertainty are most often could be original oil in place, recoverable reserves, the cost of drilling on the chosen technology, the cost of construction infrastructure for the gathering system, oil and gas treatment, transportation of produced products, the price of oil in the domestic and foreign market).


Thus, the project team must answer the question: Are there cost-effective options for the project, what is the estimated prospects of the project, what are the key risks, uncertainties, and what strategy options to reduce uncertainties and  the removal of key risks exist. Answer "yes" to the question about the prospects of the project objective of this phase is to prepare a detailed plan for the next steps, including a full range of issues, namely: the composition of the decision tree, a road map or work plan and, of course, the coordination of financial requests for further work.


The difference between stage "Preappraise" and "Appraise" is the absence of the project in the full sense of the term - the work is performed, allowing either to initiate a project, or to refuse its implementation until the necessary prerequisites will be realistic for the current level of technology and the macroeconomic situation in the country (for example, the price of oil will increase by 40%, and drilling costs reduced by 50%). In this regard, at the stage of "Preappraise" basic cost parameters should be tied to the average current rates for the region . The reason is simple - make a decision on the initiation of the project must have a margin of safety in the case of deterioration of the macroeconomic situation in the future.  Also It is necessary to take into account the possible growth rates of sale prices. It's - an additional element of credit institutions stimulation to make decisions on the allocation of necessary investments for your project.


Background information is based on individual, rare studies (exploratory wells, regional seismic 2D), which in turn, present its own assessment of the uncertainty of the required parameters for the prediction of production (such as porosity, permeability reservoir productivity size of potential reserves). After all, the statistical robustness of the results takes years and decades which is not available. Where to get these prerequisites? The most common way (this does not mean that it is bad) - a method of analogies. This refers to the search fields in similar geological conditions, and (preferably) geographical. The last factor imposes significant restrictions on the possibility of using adopted by the deposit-analog infrastructure and drilling solutions .

 

To estimate the cost indicators also used the method of statistical evaluation. There are methods that allow to make evaluation through recalculation coefficients from the statistical estimates of the cost objects to the conditions of your project - to set the degree of increased / decreased object cost, depending on the geographical factor the similarity of design capacity (CPF / GPP) pipeline, depth and well design. 

 

Be sure to contact with the major service companies (drilling, equipment manufacturers, companies engaged in the construction furnishing industries) to assess their likely costs for your proposed scenario of the field reservoir typical well pad. Oddly enough service companies interested in making such estimates because you are taking in the future as the basis their assessment of capital expenditures will further consider the possibility of purchasing services from them, especially if the calculated economic indicators of the project would be acceptable.

 

Based on the results of the work on the stage "Preappraise" built negotiating position with investors, ie produced mutually beneficial investment decision. This is the first stage of the "conversion" of any project in the form of money.
 
We forgot to mention about those who implements stages "Preappraise" and "Appraise" - how many they are where and how they perform this  project activities? The answer to the first question - the number may be limited by experts in key areas (geology, engineering, infrastructure, economy and commerce). The remaining resources (narrowly special) can be used at the expense of outsourcing, ie time-limited borrowing someone else's knowledge and experience. Often it does not directly affect the likelihood of project initiation but captures the nuances that are measured in terms of the project and without which the following steps will lead to underestimation of the risks and as a result, failure in achievement initially established criteria of the project (time, cost, quality) .

 

Speaking about the project team it should be noted that at the stage of initiation of the project is important teamwork in all areas and spheres related to future project. An obligatory condition is the availability of the team leader (manager) which can integrate the proposed local estimates, opinions and solutions, as well as filter out those issues that do not affect the possibility and probability of project implementation in the range of financial and economic indicators which are critical to initiation of the project. Drawing a parallel with the upbringing of the child - we are surrounded by a large number of adults smart and experienced people, but if we listen and use the tips of everyone in the end will not bring up the Person, and in the best case we get ... the average person possesses all a little bit. which is characteristic of conveyor production. But project, we recall, is the creation of unique product.

 

As a result if you try to identify the key objective of the project initiation stage of oil and gas production (take them as an example, since this type of activity is closest to the authors of this article) you need to answer the following questions:
 
- What is the likely time horizon of the project (3 years, 10 years 25 years)?
 
- What kind of hydrocarbons is planned to produce (oil, gas, gas condensate)?
 

- Is there a probability (P50) of finding more than N million tonnes or billion m3 reserves?

 

- Is there a possibility of expanding the resource base of hydrocarbons (referring to expand the perimeter of the project on the surrounding area)?
 
- How to export products from the field (to transport by road, rail, or build a pipeline)?
 
- Build your own Processing facility for oil or gas?
 
- Do you work in the area of technical water supply sources (for oil production are important sources for the organization of water injection, for the processing  technical water is also required)?
 
- At what price to sell hydrocarbons?
 
- Who is the main consumer (oil and gas processing plant, export, petrochemical facilities, maintenance of economic activities in the region)?
 
- What service companies working in the project area region, what are their resources and ability of allocating them for your project?

 

- Are there any aggravating factors of administrative and social nature (forest tribal lands, water protection zones, zones with recurrent natural disasters such as floods, earthquakes), a civil nature (villages, drinking water reservoirs, fish farms) which may in the future materially delay the project implementation and / or significantly increase the planned costs of the project?
 
By the way, these questions are not difficult to convert into a similar but from any other industry. Thus, the answer to the above mentioned issues is mandatory for efficient design but not sufficient because the specificity is present in any project.

 

So, the project was initiated and begins stage "Appraise" where in addition to analytical work appear more expensive work - implementation of pilot work (ie, project and design solutions in miniature) geological survey / exploration, because the available data previously conducted testing of wells, seismic, gravity and magnetic studies do not allow to give a definite answer about the potential prospects (economic attractiveness) within your project. Simply because of their goals were different - to answer the question "is there a hydrocarbons?" and the scale is different. It is for this reason at the "Appraise" stage project team should confirm (or disprove) the relationship between regional trends in the distribution of reservoir properties and saturated fluids with the fact that you will get directly in the area of your project.

 

Stage "Appraise" - this is the first substantial investment. It is multiply smaller than required in the following stages but it is significantly higher than investment spent on the "Preappraise" stage. The key here - to play / review on paper the maximum possible number of options for project implementation with the release of the most important uncertainties ("botlenecks"), prepare number of alternatives to test on the next stage of the project and in the real conditions - on the field. Quickly slipped stage "Appraise" can significantly increase the financial risk of the investor which ultimately cast a shadow on the competence of the project team.

 

To summarize the description of this stage of the project could be made the following statement - "the quality of project review / analysis at stages "Preappraise" and "Appraise" allows to optimize the volume of future investments at minimal costs actually incurred".

 

07.04.2015

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