Feasibility Phase

The Feasibility Phase: Laying the Foundation for Success in Oil & Gas Development

The oil and gas industry is complex and capital-intensive, requiring meticulous planning and careful execution to ensure profitability. One crucial stage in this process is the Feasibility Phase, which serves as the foundation for future development decisions.

Summary Description:

The Feasibility Phase is the initial stage in an oil and gas project, where the viability of a potential development is thoroughly assessed. It involves a comprehensive evaluation of technical, economic, environmental, and social factors to determine if the project warrants further investment and development.

Key Elements of the Feasibility Phase:

Exploration and Appraisal: This phase involves acquiring geological and geophysical data to identify potential hydrocarbon reservoirs. Once promising leads are discovered, detailed appraisal studies are conducted to estimate the reservoir's size, hydrocarbon type, and recovery potential.
Reservoir Evaluation: Extensive geological and engineering studies are performed to understand the reservoir's characteristics, including porosity, permeability, fluid properties, and reservoir pressure. These studies help determine the potential production rate and reserves.
Technical Feasibility: Engineers assess the technical feasibility of developing the field, considering factors like well design, drilling techniques, production methods, and potential challenges such as reservoir pressure depletion or wellbore stability.
Economic Evaluation: This step involves projecting future production, estimating operating costs, and determining the project's potential profitability. Financial models are used to assess the project's internal rate of return (IRR), net present value (NPV), and payback period.
Environmental Impact Assessment: The potential environmental impact of the project is assessed, including potential air, water, and soil pollution, habitat disruption, and greenhouse gas emissions. Mitigation strategies are developed to minimize environmental impacts.
Social Impact Assessment: The potential impact of the project on local communities is assessed, considering factors like employment opportunities, infrastructure development, and potential social conflicts.
Regulatory Compliance: The feasibility study ensures that the project meets all applicable regulatory requirements, including environmental permits, safety standards, and land use regulations.

Development Phase vs. Feasibility Phase:

The Feasibility Phase sets the stage for the Development Phase, which follows if the project is deemed viable. The Development Phase involves the detailed design, construction, and commissioning of the production facilities. This includes:

Well Construction: Drilling and completing production wells to access the reservoir.
Surface Facilities: Building production platforms, pipelines, processing plants, and storage tanks.
Production Operations: Starting and maintaining the production of oil and gas.

Importance of the Feasibility Phase:

The Feasibility Phase is crucial for minimizing risk and maximizing return on investment. By conducting a thorough evaluation, companies can:

Avoid costly investments in unviable projects.
Make informed decisions about project scope and budget.
Identify potential challenges and develop mitigation strategies.
Ensure compliance with environmental and social regulations.

In conclusion, the Feasibility Phase is an indispensable component of successful oil and gas development. By laying the groundwork for a sound project, it helps ensure that projects are viable, profitable, and sustainable in the long term.

Test Your Knowledge

Feasibility Phase Quiz

Instructions: Choose the best answer for each question.

1. What is the primary purpose of the Feasibility Phase in oil and gas development?

a) To identify and secure funding for the project. b) To design and construct production facilities. c) To thoroughly evaluate the viability of a potential development. d) To begin production and extract oil and gas.

Answer

c) To thoroughly evaluate the viability of a potential development.

2. Which of the following is NOT a key element of the Feasibility Phase?

a) Exploration and Appraisal b) Reservoir Evaluation c) Market Research and Sales Strategy d) Environmental Impact Assessment

Answer

c) Market Research and Sales Strategy

3. What is the primary purpose of the Economic Evaluation in the Feasibility Phase?

a) To determine the environmental impact of the project. b) To assess the project's potential profitability and financial viability. c) To identify and secure necessary permits and approvals. d) To design and implement production operations.

Answer

b) To assess the project's potential profitability and financial viability.

4. What is the relationship between the Feasibility Phase and the Development Phase?

a) The Development Phase follows the Feasibility Phase only if the project is deemed viable. b) The Feasibility Phase occurs after the Development Phase is completed. c) The Feasibility Phase and Development Phase are independent of each other. d) The Development Phase is a component of the Feasibility Phase.

Answer

a) The Development Phase follows the Feasibility Phase only if the project is deemed viable.

5. Which of the following is NOT a benefit of conducting a thorough Feasibility Phase?

a) Minimizing risk and maximizing return on investment. b) Ensuring compliance with environmental and social regulations. c) Identifying potential challenges and developing mitigation strategies. d) Guaranteeing successful production and profitability.

Answer

d) Guaranteeing successful production and profitability.

Feasibility Phase Exercise

Scenario:

You are a junior engineer working for an oil and gas company. Your team has discovered a promising new oil reservoir. Your manager has tasked you with creating a preliminary Feasibility Study.

Your task:

Identify the key elements of a Feasibility Study that need to be considered for this new oil reservoir.
Explain the importance of each element and how it contributes to the overall success of the project.
Describe potential risks and challenges associated with each element and suggest mitigation strategies.

Exercise Correction

Here is a possible outline for your Feasibility Study:

**Key Elements and Importance:**

**Exploration & Appraisal:**
- Importance: To confirm the presence of hydrocarbons, estimate the size and potential production rate of the reservoir, and assess the quality and type of oil/gas.
- Risks: Uncertainty about reservoir size, potential for poor recovery rates, inaccurate estimates of reserves.
- Mitigation: Conduct thorough seismic surveys, use advanced drilling and logging techniques, and refine appraisal methods for greater accuracy.
**Reservoir Evaluation:**
- Importance: To understand the reservoir's properties (porosity, permeability, pressure, etc.) which influences production rates and potential recovery.
- Risks: Difficult reservoir conditions, reservoir depletion, wellbore instability.
- Mitigation: Utilize advanced reservoir simulation models, consider enhanced oil recovery (EOR) techniques, and implement robust wellbore design practices.
**Technical Feasibility:**
- Importance: To assess the viability of extracting oil and gas using available technologies and considering factors like well design, drilling techniques, and production methods.
- Risks: Complex drilling conditions, limited access to the reservoir, production challenges due to reservoir conditions.
- Mitigation: Invest in specialized drilling equipment, employ experienced personnel, and consider alternative production methods (e.g., horizontal drilling, fracking).
**Economic Evaluation:**
- Importance: To project future production, estimate operating costs, and determine the project's profitability using financial models (NPV, IRR, payback period).
- Risks: Fluctuations in oil prices, unexpected cost overruns, uncertainties in production estimates.
- Mitigation: Develop robust financial models with various oil price scenarios, implement cost-control measures, and ensure reliable production estimates.
**Environmental Impact Assessment:**
- Importance: To identify and assess potential environmental impacts (air, water, soil pollution, habitat disruption, etc.) and develop mitigation strategies.
- Risks: Negative environmental impact on sensitive ecosystems, potential for spills and leaks, public concern over environmental degradation.
- Mitigation: Develop comprehensive environmental management plans, implement pollution control technologies, and engage in stakeholder engagement and community outreach.
**Social Impact Assessment:**
- Importance: To evaluate the impact of the project on local communities, considering factors like employment opportunities, infrastructure development, and potential social conflicts.
- Risks: Community opposition, potential for social unrest, conflicts over land use, and displacement of local communities.
- Mitigation: Develop community engagement programs, provide employment and training opportunities for local residents, invest in local infrastructure development, and ensure fair compensation for land acquisition.
**Regulatory Compliance:**
- Importance: To ensure compliance with all relevant environmental, safety, and land use regulations to minimize risks and obtain necessary permits.
- Risks: Delays in project approval, legal disputes, potential fines and penalties.
- Mitigation: Conduct thorough legal and regulatory research, engage with relevant authorities, and maintain compliance throughout the project lifecycle.

Books

Petroleum Development and Production: By John M. Campbell (2005) - This comprehensive textbook covers all aspects of oil and gas development, including a dedicated chapter on the Feasibility Phase.
The Economics of Petroleum Exploration and Production: By Robert C. Earlougher (2010) - Provides a detailed analysis of economic factors in oil and gas development, including feasibility studies and financial modeling.
Upstream Oil & Gas Economics: By David A. Hughes (2014) - Focuses on the economic principles behind upstream operations, including risk management, resource evaluation, and feasibility assessment.
Oil and Gas Exploration and Production Handbook: Edited by R.E. Gjelstad (2017) - A comprehensive guide to oil and gas operations, with dedicated sections on exploration, appraisal, and feasibility studies.

Articles

Feasibility Study and Economic Evaluation for Oil and Gas Projects: By Mohammad Reza Ghasemi et al. (2017) - This paper provides a detailed overview of the process for conducting feasibility studies and economic evaluation for oil and gas projects.
The Feasibility Phase of Oil and Gas Exploration and Development: By John A. Lee (2009) - This article explores the key elements and challenges involved in conducting a feasibility study for oil and gas projects.
The Importance of Feasibility Studies in Oil and Gas Development: By Robert J. Baker (2012) - Emphasizes the crucial role of feasibility studies in minimizing risk and ensuring profitable outcomes in oil and gas projects.

Online Resources

Society of Petroleum Engineers (SPE): The SPE website offers a wealth of resources on oil and gas exploration, development, and production, including technical papers, conference proceedings, and educational materials.
Petroleum Economist: This online publication provides industry news, analysis, and insights on the global oil and gas sector, including articles and reports on feasibility studies.
Oil & Gas Journal: This industry magazine publishes articles and technical reports on various aspects of oil and gas development, including feasibility analysis and project planning.

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