Page 354 - Hydrocarbon Exploration and Production Second Edition

Petroleum Economics 341

Revenue Items Expenditure Items
gross revenues from capital expenditure (capex)
sales of hydrocarbons e.g. platforms, facilities, wells
(assets with lifetime > 1year)
tariffs received
operating expenditure (opex)
payments for farming e.g. maintenance, salaries, insurance,
out a project or part of tariffs paid (assets with lifetime < 1year)
a project
government take, eg:
– royalty
– tax
– social contributions (eg education funds)

Figure 14.2 Typical revenue and expenditure items.

OPEX and host government take). For each year the balance is the project net
cashflow (or just project cashflow). Hence, on an annual basis
Project net cashflow ¼ Revenue expenditure
Typical revenues and expenditure items are summarised in Figure 14.2.

14.2.1. Revenue items

In most cases the revenues will be due to the sale of hydrocarbons. In determining
these gross revenues, oil and/or gas prices must be assumed. The oil price forecast is
often based on a flat real terms (RT) price (i.e. increasing in price at the forecast rate
of inflation) or flat money of the day (MOD) price (i.e. price stays the same and is
thus declining in RT). Both the level and method of price forecast are a matter of
taste, and the industry analysts have in the past been notoriously poor at predicting oil
price. Oil price is often linked to a regional marker crude such as Brent crude in the
North Sea; the specific crude price is adjusted for specific conditions such as crude
quality and geographic location. A gas price forecast may be indexed to the crude
market price or be taken as the result of a negotiated price with an identified
customer. A peculiarity of some gas contracts is that a fixed gas price is agreed for a
very long period of time, possibly the lifetime of the field, which may result in
disparities if the oil price and prevailing gas price change dramatically. Such contracts
will often partially index gas price to the market price of the crude, and to other
energy forms such as electricity prices.

14.2.2. Expenditure items

14.2.2.1. OPEX and CAPEX
The treatment of expenditures will be specified by the fiscal system set by the host
government. A typical case would be to define expenditure on items whose useful life
exceeds 1 year as CAPEX, such as costs of platforms, pipelines, wells. Items whose