Risk Analysis of Oil and Gas Drilling Investment

Risk Analysis of Oil and Gas Drilling Investment

Investment in upstream oil and gas industries has high risk and high cost properties, where the risks faced in investing in oil and gas industries include: geology, technical, political, market.

Drilling is one of the important activities in the upstream oil and gas industry where the average oil and gas company is budgeting investment costs for drilling 50-70% of the total captex (CAPEX) expenditure, drilling techniques will face the risk of kick, loss, shale problems, equipment failure, sticking, where if it is not resolved it will result in very large losses, in this article we will discuss some drilling risks that are correlated with budget increases and decrease contractor shares with the assumption of 80% cost recovery, with some drilling risk sensitivity with revenue obtained expected papers this could be a preliminary study in investing in oil and gas drilling

In general, oil and gas drilling investments reach 20% of capital and 80% of non-capital. Oil and gas drilling as one of the main activities in field development must be managed properly, the purpose of drilling not only lies in the availability of wells as oil and gas producers, but also technical and orderly administration. Planning a drilling based on HSE factors, Technical, Budget.

Some realization of drilling costs by engineer estimate exceed the budget (AFE) budgeted, and the core will affect the profit plan. The basis for calculating the economics of wells is made from well production and costs incurred

with sensitivity to the variable oil and gas prices. Sensitivity can be done for several economic parameters as project risk analysis.

Risk analysis before drilling needs to be assessed to give the economic value of the well more if drilling is done by dealing with the existing risks, in this paper the risk involved is a hole problem that is often encountered during drilling which causes an increase in drilling costs. Drilling evaluated is drilling conducted by an Oil company in an Area.

Mapping the Hole Problem of an Area

Drilling carried out by Drilling an Oil company in a Region in this case, the writer calls Sumatra has a depth range of 400-2750 mMD, with oil production targets of 100 - 300 BOPD and Gas 1 - 4 MMSCFD, Rig available capacity 350 - 1500 HP, the number of wells drilled in 2008 was 21 wells. The drilling realization data is the basis of the calculation of the risk analysis for this paper.

Drilling in the area penetrates the formation: seurela, upper ketapang, lower ketapang, baong (BRS), Belumai, while drilling in the area of ​​sumbagteng and sumbagsel penetrates formations: estuary enim, Air Benakat, Gumai, Talang Akar.

Technical Hole Problems that occur include:

• shale
• Loss & Kick
• Depleted zone
• Loose formation.

Drilled formations and potential problems and action plans can be seen as follows:

H2S, CO2, and high temperature content were found in drilling in the Wampu structure. The mud system used for drilling in the Sumbagut area is OBM (base fluid SF-05) and the source area for Sumbagsel uses KCL-Polymer.

Evaluation of Cost / ft Due to Hole Problems

Some parameters for drilling evaluation can be done such as:

• Cost / ft
• Non Productive Time (NPT)

The drilling performance indicators used in this paper use the cost / ft parameter, where evaluation of hole problems will be compared with the cost / ft of the drilling program to get a correction of the total cost / ft of the well, analysis of the increase in cos / ft 2 - 6% against the hole problem can seen in the following table.

Risk Analysis of Drilling Investment

The risks of the project are technical and non-technical uncertainties that affect profits. The preparation of the budget in the AFE submission does not include a contingency plan, but the oil company must continue to provide material and services to solve the problem (hole problem) if it occurs. Part of the drilling risk may not be included in the cost recovery, with the analysis risk and the possibility of cost recovery drilling is only 80%.

Investors have an estimate of the profit that will be obtained before the execution of drilling. This drilling risk analysis has added value in decision making by calculating several other sensitivity variables such as oil prices, Rig rental prices, which can help provide input on whether the drilling project can be done or delayed, after the well economic evaluation is based on IRR, NPV indicators.

The economic evaluation of drilling wells in the Region such as Sumatra can be seen in the following graph.

 

Additional risk data input analysis that causes an increase in the total cost of the profits obtained (contractor share) will give the effect of "level confidence" to management to assess a project. Calculations for this risk analysis use parameters for the budget:

• Cost per ft = 569
• Rig cost = 24.74 USD / cellphone
• Qoi = 100 bopd
• Qgi = 1 mmscfd
• Exchange rate: 10,500 USD

As for the technical parameters

• Total Depth = 2500 m
• Rig of 1000 hp
• 4 level chassis sets
• Pressure rating of 5000 psi
• Temperature rating <320 F

The advantage of drilling risk sensitivity analysis:

• Helps identify values ​​that affect profits.
• Prepare additional budgets if needed.
• Ensure that drilling projects can be continued.

Conclusion

1. Risk analysis causes a correction of cost / ft for the purpose of the economic sensitivity of the well, from the calculation of the increase in cost / ft by entering the risk analysis into 12% -25% of the proposed budget (AFE)
2. Economic value of drilling with sensitivity to oil prices for drilling in the Sumatran area by including the highest risk analysis reached at a price of 40 USD / Bbl.
3. Economic value of drilling with sensitivity to oil prices for drilling in the Sumatran area by including the highest risk analysis and 80% cost recovery reached at the price of 50 USD / Bbl.

References:

• Widagdo, Widjajono, 2009, “Minyak dan gas Dan Energi Di Indonesia”, Development Studies Foundation, Bandung.
• Kadir, Abdul Wahab, 2004,”Resiko Bisnis Sektor Hulu Perminyakan (Analisis Teknis Dan Finansial) Pradya Paramita, Jakarta
• Ali Sundja, Anas Hanafiah, 2009, Analisa Resiko Investasi Pemboran Minyak dan gas Area Sumatera, Makalah Profesional, IATMI