Project Evaluation Review

Test Your Knowledge

Project Evaluation Review (PER) Quiz:

Instructions: Choose the best answer for each question.

1. What is the primary purpose of a Project Evaluation Review (PER) in the Oil & Gas industry?

a) To generate new project ideas. b) To assess the feasibility and potential of proposed projects. c) To track project progress and monitor performance. d) To manage project risks and mitigate potential issues.

2. Which of the following is NOT a typical component of a PER?

a) Project Definition b) Market Analysis c) Technology Development Plan d) Financial Analysis

3. What is the significance of the "Risk Assessment" section within a PER?

a) To identify potential hazards to workers on the project site. b) To quantify the financial impact of potential project delays. c) To identify and assess potential challenges and develop mitigation strategies. d) To determine the environmental impact of the project.

4. How does a PER contribute to informed decision-making in the Oil & Gas industry?

a) By providing a detailed overview of the project's potential, risks, and benefits. b) By creating a detailed project schedule and assigning responsibilities. c) By identifying potential investors and securing funding for the project. d) By conducting market research to understand customer preferences.

5. Which of the following is NOT a benefit of conducting a Project Evaluation Review?

a) Improved project execution b) Enhanced resource utilization c) Reduced project costs d) Increased regulatory compliance

Project Evaluation Review (PER) Exercise:

Scenario: An oil and gas company is considering a project to develop a new offshore drilling platform. They have conducted initial assessments and are now preparing for a formal PER.

Task:

1. Identify three key components of the PER that are particularly important for this specific project. Explain why these components are crucial for the project's success.
2. Describe two potential risks associated with this project and suggest mitigation strategies for each.

Techniques

Project Evaluation Review (PER): Navigating the Decision-Making Process in Oil & Gas

This document expands on the provided text, breaking down the Project Evaluation Review (PER) process into separate chapters.

Chapter 1: Techniques

This chapter details the specific methods and techniques employed during a PER in the oil and gas industry. Several quantitative and qualitative techniques are crucial:

• Discounted Cash Flow (DCF) Analysis: This is a cornerstone of financial evaluation, considering the time value of money to determine the Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period of a project. Sensitivity analysis and scenario planning (best, base, worst case) are vital extensions to understand risk.

• Real Options Analysis: This technique recognizes that projects often offer flexibility (e.g., the option to expand, abandon, or defer). Real options analysis incorporates this flexibility into the valuation, potentially leading to higher valuations than traditional DCF.

• Monte Carlo Simulation: This probabilistic technique models the uncertainty inherent in many project parameters (e.g., oil price, production rates, capital costs). By running thousands of simulations, it generates a probability distribution of potential outcomes, providing a more comprehensive risk assessment than point estimates.

• Decision Tree Analysis: This visual tool helps to map out potential project pathways and their associated probabilities and outcomes. It is particularly useful for evaluating projects with significant uncertainty and multiple decision points.

• SWOT Analysis: This qualitative technique identifies the project's Strengths, Weaknesses, Opportunities, and Threats. It provides a structured framework for considering both internal and external factors influencing the project's success.

• Stakeholder Analysis: Identifying and analyzing the interests and influence of different stakeholders (e.g., government, local communities, investors) is crucial for effective project planning and risk management. This can often feed into a social impact assessment.

• Risk Register and Prioritization: Creating a comprehensive risk register that identifies, analyzes, and prioritizes potential risks is essential. Techniques such as Probability and Impact matrices help in prioritizing risks for mitigation efforts.

Chapter 2: Models

Several models underpin the quantitative aspects of a PER. These models often interact and inform each other:

• Reservoir Simulation Models: These complex models predict hydrocarbon production rates based on geological data and reservoir properties. These predictions are vital inputs for economic evaluations.

• Production Forecasting Models: These models use reservoir simulation outputs and operational assumptions to forecast future production volumes and associated revenues.

• Cost Estimation Models: Detailed cost models break down project costs into various categories (e.g., drilling, completion, operations, decommissioning). These models may use parametric estimation, bottom-up cost estimation, or a combination of both.

• Economic Models: These models utilize the outputs from the above models to perform DCF analysis, real options analysis, and other financial evaluations.

Chapter 3: Software

Various software packages support the PER process, enhancing efficiency and accuracy:

• Reservoir Simulation Software: Examples include Eclipse, CMG, and Petrel.

• Spreadsheet Software (Excel): Widely used for cost estimations, DCF analysis, and scenario planning. Macros and add-ins can automate repetitive tasks.

• Specialized Project Management Software: Tools such as Primavera P6 or MS Project aid in scheduling, resource allocation, and risk management.

• Financial Modeling Software: Dedicated software packages streamline complex financial modeling tasks.

• Data Analytics and Visualization Software: Tools like Tableau or Power BI can effectively visualize and analyze large datasets, supporting decision-making.

Chapter 4: Best Practices

Best practices ensure the effectiveness and reliability of the PER process:

• Establish Clear Objectives and Scope: Define the project’s goals, deliverables, and boundaries upfront.

• Involve Cross-Functional Teams: Gather expertise from various disciplines (engineering, finance, environment, social impact) to ensure a holistic assessment.

• Use Transparent and Consistent Methodology: Employ standardized procedures and reporting templates to ensure consistency and comparability across projects.

• Regularly Update the PER: The PER should be a living document, updated as new information becomes available or assumptions change.

• Document all Assumptions and Uncertainties: Transparency regarding underlying assumptions is crucial for evaluating the robustness of the results.

• Perform Independent Verification and Validation: Independent review of the PER by experts can identify potential biases or errors.

• Establish Clear Decision Criteria: Define the criteria for project approval (e.g., NPV threshold, IRR target), ensuring objectivity.

Chapter 5: Case Studies

This chapter would present real-world examples of PERs conducted in the oil and gas industry. Each case study would illustrate:

• Project specifics: Type of project, location, scale, and objectives.

• Methodology used: The techniques and models applied in the PER.

• Key findings: The results of the analysis, including financial projections, risk assessment, and environmental impact.

• Decisions made: How the PER informed the decision regarding project approval, rejection, or modification.

• Lessons learned: Key takeaways and insights that can inform future PERs.

  Examples could include case studies of successful projects, projects that were rejected due to unfavorable results, or projects that underwent significant modifications based on PER findings. Each case study should highlight the impact of the PER on decision-making and project outcomes.