Petroleum Project

Economics
Econ210D
Presentation 6
Sensitivity Analysis for Changing
Variables
Week 6

Changing Variables
Economic evaluations are made based on
assumed parameters
These parameters are likely to change
over life of field
Such changes would affect the feasibility
of the project
Sensitivity Analysis for Changing
Variables Week 6

Sensitivity Analysis for

Changing Variables
Measuring the effect of changes in key
variables on the economic performance of
an investment.
Parameters are varied one at a time with
all other variables held constant.
The effect on NPV is usually measured.
Sensitivity Analysis for Changing
Variables Week 6

Petroleum Project Parameters

Parameter
Field Estimate
Recoverable Reserves
160 mbo
Field Life
20 years
Oil Price
$60
Total CAPEX
$500m
OPEX per bbl
$5
Sensitivity analysis examines the effect of
changes in any one of these parameters on
the economic evaluation of a project.
Sensitivity Analysis for Changing
Variables Week 6

Independent and Control

Variables
The parameters which are changed in the
sensitivity analysis is called the
independent variable.
The other variables in the sensitivity
analysis which are held constant are called
control variables.
Sensitivity Analysis for Changing
Variables Week 6

Independent and Control

Variables
Field
Estimate

Sensitivity
Analysis

Parameter
Recoverable
Reserves
160 mbo
Control
Field Life
20 years
Control
Oil Price
$60
Independent
Total CAPEX
$500m
Control
bbl
$5
Control
In OPEX
this per
sensitivity
analysis,
oil price
is the

independent variable and all other parameters

are control variables.
Sensitivity Analysis for Changing
Variables Week 6

Sensitivity Analysis of Oil

Price
Oil
Price

NPV
$B

$50

$2.1

$60

$2.9

$70

$3.7

Sensitivity Analysis for Changing

Variables Week 6

Spider Plots

Sensitivity analysis examines What if situations

based on changes in one parameter at a time.

Spider plots are used to present graphically

several sensitivity analyses

This helps to give a visualization of the

parameters which has the biggest effect on a

projects profitability.

Sensitivity Analysis for Changing

Variables Week 6

Spider Plots
NPV due to change in Independent
Variables
Change in
Independ
ent
CAPE Reser Field
Price OPEX
Tax
Variable
X
ves
Life
-50%

0.0

-2.9

5.8

5.8

8.7

1.5

-25%

1.5

0.0

4.4

4.4

5.8

2.2

0%

2.9

2.9

2.9

2.9

2.9

2.9

25%

4.4

5.8

1.5

1.5

0.0

3.6

50%

5.8

8.7

0.0

0.0

-2.9

4.4

Sensitivity Analysis for Changing

Variables Week 6

Sensitivity Analysis for Changing

Variables Week 6

10

Sensitivity Analysis for Changing

Variables Week 6

11

Other Independent Variables

Altered production profiles
Changes in production start-up date
Unscheduled shut downs
Inflation
Sensitivity Analysis for Changing
Variables Week 6

12

Sensitivity Analysis for Changing

Variables Week 6

13

Home Work
Using the data in the following slide,
together with the data from presentation 4
conduct a sensitivity analysis based on the
changes in the slide which follows.
Use the results to construct a spider plot.
14

Independ
ent
Variable

Percenta
ge
Change

Price

OPEX

CAPEX

-50%

-2.9

5.8

50%

4.4

15