Calculate total and annual reserves that may be produced over the economic life of the project.

Section B.
Answer all questions in this Section.

1. Reservoir Oil E&P Co. has been contracted by the Government of Ghana under a risk service contract. This project is located in the deep waters of the Atlantic and due to the highly risky nature of the prospect; Reservoir Oil Co. must establish whether or not to take up this offer based on both the Government Take and the Company’s Take statistics from the operation. Below is a most probable forecast of data from the venture.

Assuming that best practice in industry is a minimum Contractor Take of 15%, calculate the government take and the contractor take and comment on this offer.

(8 marks)
Insert answer here (X awarded marks)

2.

a)

b)

i.)

ii.)

From the table above, calculate total and annual reserves that may be produced over the economic life of the project and clearly show the following:
Annual and total post economic limit cash flows with abandonment costs and the economic life of the project/ field

Following a recent renegotiation of the contract, the host government of the above project has proposed to introduce of a 20% royalty to be charged on gross revenues. You are required to:

Calculate the new reserves that could be produced from the above project given the effect of the proposal. [Note: include the post economic limit net cash flows]

Assess the impact of the new proposal on the above project using quantitative evidence to articulate your arguments.

(8 marks)

(5 marks)

(6 marks)

Insert answer here (X awarded marks)

3.

a)

b) Sweet Oil Company operates a Production Sharing Contract in the South Indonesia Sea.
Sweet Oil has 49% of working interest (WI), and Pertamina (owned by the Indonesian government) has 51% of the working interest. The fiscal terms allow for the split of annual gross oil production as follows:
VAT equals 7% of annual gross production
Royalty of 13% of annual gross production
Cost oil is limited to 62% of annual production, with costs to be recovered in the following order:
Operating expenses
Exploration expenditures (Sweet Oil Company, 100%)
Development costs (Sweet Oil Company 49%, and Pertamina, 51%)
Annual gross production remaining after cost recovery becomes profit oil and is split in the following order:
The government receives 15% of profit oil
The remaining 85% is shared by Sweet Oil Company and Pertamina based on their working interests.
During 2014:
Recoverable operating costs were $4,000,000. Unrecovered exploration costs equalled $10,000,000.
Unrecovered development costs were $100,000,000. The estimated gross crude oil production for the year is 2000,000 barrels
Agreed oil price is $100/bbl for the purpose of converting costs into oil.

Calculate how much oil each of the parties will receive

Determine the government take and contractor take statistics

(12 marks)

(11 marks)

(1 marks)
Insert answer here (X awarded marks)

4. a) (i) Fortune Oil Services (FOS) entered into a risk service agreement with the Chilean government. FOS agreed to pay all of the costs associated with exploration, development, and production.
The contract defines costs incurred in the exploration and development phase of each project area as being capital costs (CAPEX), and all costs incurred in the production phase as operating costs (OPEX).
Each year, in which production occurs, the government agrees to pay Fortune Oil Services a fee comprising the following:
a) All OPEX incurred in the current year
b) A tenth of all unrecovered capital costs
c) $0.40/bbl on production from 0 to 4,000bbl/day, $0.60/bbl on production from 4,001 to 10,000bb/day, and $0.90/bbl on production above 10,000bbl/day.

The agreement indicates that the maximum total fee that will be paid in any year is $1.45/ bbl times the total number of barrels produced. Any unrecovered OPEX or CAPEX (unrecovered due to the fee cap) can be carried forward into future years.
Assume that in 2012, production commenced on the Llama Field. At that time, Fortune had spent $10,000,000 on CAPEX and during 2012, spent $3,000,000 in OPEX. Total oil production for 2012 was as follows:
Star Well 3,642,000 barrels
Lucky Well 1,358,000 barrels

Calculate the fees to be paid to FOS Ltd given the fee cap (8 marks)
Insert answer here (X awarded marks)

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