Page 95 - Principles of Applied Reservoir Simulation 2E

80 Principles of Applied Reservoir Simulation

(9,6)

where P 0 is the present price of oil, and AN° (k) is the incremental oil production
during period k. Notice that we are assuming the value of produced gas is
negligible in this example. An inflation factor on the price of oil is included in
Eq. (9.6). Combining Eqs. (9.4), (9.5), and (9.6) yields net present value for this
project:

O
(9.7)

Q Q

The incremental oil production in Eq. (9.7) is typically obtained as a
forecast using reservoir engineering methods. Some of the most frequently used
methods include decline curve analysis, material balance analysis, or reservoir
simulation. The oil production profile used in the economic analysis may
represent both historical and predicted oil recovery. Th& predicted oil recovery
is used to determine project reserves. Several different production profiles may
be required to determine the probabilistic distribution of reserves and associated
economic sensitivity.
A break-even oil price P oe for a specified rate of return / = ROR and
production profile is calculated by setting NPV= 0 as the break-even condition
in Eq. (9.7). Rearranging the resulting equation gives the following estimate of
break-even oil price:

N^Q
(9.8)
~.f ROR
1 T
Q Q

A plot of P w versus ROR shows the sensitivity of break-even oil price to
different rates of return.