npv analysis

I had some free time over the weekend so decided to do an NPV analysis. I read through the EORI detailed study from November and decided to use Scenario 2 over a 14 year project life. Although this recovers 20 MMBO rather than the maximum 23 MMBO often quoted, it looks like that is the most economic configuration.

I do a lot of investment evaluations in my job and I often calculate and review NPVs so I think I have done a thorough job of it.

These are the assumptions I used in my NPV calculations:

1. Long-term average oil price $US80 (I could have used a higher number but I decided to be conservative)
2. Long-term average exchange rate 0.94 ( again I am being conservative here, also the exchange rate is a natural hedge against the oil price)
3. I used a discount rate of 10%. This is conservative based on what the long-term bond rate is in the US.
4. CO2 costs are $US1.50 / mcf plus a royalty to the supplier of 2% of the oil price. This is in line with CO2 supply agreements I have seen.
5. CO2 injection rates of 110 mmcfd in the re-pressurisation phase, then 44 mmcfd in the production phase (based on EORI study).
6. Production starts after 2.75 years.
7. Production profile is in line with the EORI graph in their study.
8. Total oil recovered 20 MMBO.
9. Average production cost (excluding CO2) is $US15 / barrel.
10. Capital costs total $US40.60M. This is made up of 6 new injector wells and 2 new production wells at $US1.5M each. A 2 mile 10” pipeline to connect to the main line, say $US300K per mile. CO2 connections to new wells plus compression equipment, say $US2m per well = $12M. Connection of new production wells to infrastructure, $1M. CO2 recycling equipment needed in year 3, investment to be made in year 2, say $15M. (All my figures based on some research).

Based on all this, my NPV is $370M. There are numerous permutations based on the variables, eg. if I use an oil price of $100, the NPV becomes $532M. If I also change the discount rate to 8% and the exchange rate to 0.90, the NPV becomes $633M.

Gives some idea of the value of this thing!