‫دولة ليبيا‬

‫وزارة التعليم التقني والفني‬

‫كلية التقنية الهندسية – جنزور‬

Department of Petroleum Engineering

Research Paper Title:

Oil&Gas Project evaluation

Prepared by:

1-Mohamed Abdulhafed Mohamed Fernana

Academic Year:

2024 - 2025
 Abstract

The process of evaluating, researching, and choosing new petroleum projects,

which include a variety of operations, requires a thorough economic evaluation.
An overview of the economic evaluation process, including its ideas and
standards, and the nature of petroleum projects, is provided in this article. The
new responsibilities, skills and tools required to conduct a reasonable study of
any Petroleum Project proposal were given particular attention.

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 Contents
Abstract ................................................................................................................................................... i
1. Introduction ........................................................................................................................................ 1
2. Petroleum Projects .............................................................................................................................. 1
2.1 Characteristics and Indicators....................................................................................................... 2
3. Conclusion .......................................................................................................................................... 3
References .............................................................................................................................................. 4

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1. Introduction
Project evaluation is an essential part of the process of studying available investment
opportunities and supporting decision-making, by using special methodology and scientific
analysis to select best options. Currently, many relevant areas have been developed such as
technology, increasing number of economic and non-economic factors and new forms of fiscal
terms, all of them make the modern economic evaluation more important and more complex.
Petroleum projects as investment opportunities require huge funds and with a long time to
construct and they are associated with a series of risks and uncertainties. Therefore, the
economic evaluation can be a main tool and reasonable way to find out best petroleum
investment opportunities in terms of cost, revenue and risks. For those conditions, many
methods and techniques have been developed to support the process of economic evaluation
of petroleum projects. That became possible thanks to advanced programs, additional skillsand
experiences as well as the outputs of mathematical and statistical sciences. These developments
make some associated works easier and may help to increase the available information,
decrease cost and risks, and ensure high speed and more accuracy.

2. Petroleum Projects
The petroleum Industry consists of different activities related to the exploitation of the oil and
gas resources under and above the ground (Exploration, Development, Production, Refining,
Gas Processing, as well as Transportation and Distribution). In spite of this each one has its
own specific features but they are interrelated and integrated. A petroleum project as an
investment opportunity may not differ considerably from projects in the other types of
industries. Simply, it is an allocation of capital to be spent on certain production factors that
are required to establish a (Project) with commercial or non-commercial objectives. As an
important integrated part, it is necessary to distinguish between the types of petroleum project
evaluations; simple or complex, high cost or low cost, undertaken by one individual or by a
team, for a company or an investor depending on their cost and purposes.
In this regard, it must be considered that the funds, which are spent during the initial investment
of the petroleum project at the early period, will go to hundreds of directions and channels. For
example, purchasing equipments and materials from various sources, employing many people

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with different specialties, contracting with various companies to undertake some designs or
conduct certain works and services...etc. Expected revenues that shall be received after
relatively long time, under uncertain conditions, will only be from selling one or few products.
This is why the economist should have sufficient knowledge and experience, and must be
careful throughout the stages of economic evaluation process.

2.1 Characteristics and Indicators

Petroleum projects may differ considerably according to their various activities. Therefore,
required details of project related to technical background and economics, which are made on
the basis and characteristics of those activities, are also different. For example, the technical
background of the exploration projects is substantially different from those of the refining
projects, also between pipeline projects and gas plants. Ultimately, all of them should be
expressed as monetary values and be classified as cost and revenue.
Concerning the software programs, there are many types of petroleum economics evaluation
software programs, each one deals with a specific area such as; oil and gas reserves analysis,
drilling works, exploration and production, refineries and gas plants. Any one who uses these
programs must have multi‐skills and good experience with the relevant projects or activities.
To take a look at main features of the cash flows for some of the petroleum projects, the
following are some examples:
A. Within exploration and production projects, which often contain special contracting
fiscal terms, the evaluation process is summarized in breaking down the cost into capital
expenditures related to initial investment and operating cost related to requirements of
production process such as transport and maintenance works. On the other hand the expected
revenues will be achieved from selling oil and/or gas, to cover the costs and expected profits.
B. Refining projects are relatively different, where the evaluation process includes: capital
expenditure for constructing the refinery complex and operating costs for the maintenance
works, material purchases and labor, but the most important in their cost is the feed crude oil
purchases. Whereas revenues are generated from the yields of products sales

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C. Pipeline projects include capital expenditures for establishing the pipeline, and operating
cost for maintenance works and labor as well as taxes and duties. Revenues are made from the
tariffs charged to those transporting crude oil or natural gas or products in the pipeline.
D. As for gas plants, huge funds should be spent (as capital expenditure) when establishing
complex plants, with operating cost to purchase feed gas and some other required materials as
well as the cost of maintenance works and labor. The revenues will be received from selling
the plant's products (e.g. LPG and Dry Gas). In addition, investment form is very important
point, since petroleum investment is characterized by the use of special forms so called
(International Petroleum Contracts) for exploiting petroleum resources, which are classified in
three main types: Concession, Production Sharing and Service Contracts. These contracts
contain various terms such as (Bonus, Royalty, Petroleum Income Tax, Cost Oil and Profit
Oil). Besides, there are special formulas computed by simple and complex equations such as
(Sliding Scales, R‐Factor,
ROR‐Factor, Price Cap and
Netback). Those terms and formulas are essential items and have significant effects during the
process of preparing, scheduling and computing cash flows and the expected final values of
the project.

3. Conclusion
The evaluation of petroleum projects has general features which are similar to those in other
industries. However, there are special and distinguished issues, essentially linked to the nature
and conditions of petroleum projects, and they require special skills and experiences. In other
words, there are many basic aspects surrounding the economic evaluation of petroleum projects
that should be considered carefully and accurately, individually and collectively.

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 References

1. Dr. Hisham Yas, Economic Evaluation of Petroleum Projects, Journal of

Petroleum Researches & Studies. (2010).
2. Jafarizadeh, B.; Bratvold, R.B. Project Economics in the Big-Bets
Industry: The Integrated Valuation in Practice. J. Pet. Sci. Eng. 2021, 197,
108095.
3. Yakupov, R.F.; Mukhametshin, V.S.; Khakimzyanov, I.N.; Trofimov, V.E.
Optimization of reserve production from water oil zones of D3ps horizon
of Shkapovsky oil field by means of horizontal wells. Georesursy 2019,
21, 55–61.