Wildcat Oil in Kasakstan Case Report
By
Varun Khurana
Engineering Economics
May 10, 2011
To: Wildcat Oil in Kasakstan
From: Varun Khurana
About: Cost Estimate of a facility to produce oil
Recommendations 1. Larger facility is a wise investment and therefore recommended
Discussion
Wildcat Oil has recently discovered a 500 million barrel crude oil reservoir in Kasakstan, and the firm needs a preliminary cost estimate for a feasibility study for a facility to produce the oil and for transporting this oil. Wildcat Oil has already paid the Kasakstan govt. $400M in up-front lease costs for this reservoir. Engineers predict recovery of about 300 million barrels with current technology, however the oil facilities and
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$155M is the net revenue (profilt) per year which was found by dividing total revenue value of $1.2375B by 8 (i.e. $1.2375B/8)
Again, $400M is ignored since it represents opportunity (sunk) cost.
Given that the total profit over 8 years is $1.2375B (or $155M per year for 8 years), we will now compute the Present Value of this amount using the following formula:
P = F(1 + i)-N where i is 15% as mentioned in the case suggestions and N is 8 as we found above, and F is $1.2375B
P = $1.2375 (1.15)-8
P = $1.2375 (0.3269)
P = $404.5M
The Present Worth of this project with a 36,000 bbl/day facility is $404.5M and the total profit that Wildcat Oil is expected to make is $404.5M - $260.4M, which amounts to $144.1M.
We will now calculate the costs and benefits, if any, from resizing the facility to process a total of 41,000 bbl/day (i.e. increase of 5,000 bbl/day).
Wildcat’s Cost when Oil Production is 41,000 bbl/day
The Power Sizing Technique formula discussed in Chapter 3, is used to determine the cost of the 41,000 bbl/day facility.
Cost41000 =[ (36000/41000) .67] / [$260.4M]
Cost41000 = $284M
Given that the cost of 41000 bbl/day facility is $284M, we will now calculate the number of years to recover 100M bbl of Oil at a rate of 41,000 bbl/day.
Number of years to extract 100M bbl at production rate of 41,000 bbl/day
Number of years = 100M/(41000 * 365) = 6.7 years
We will assume that the number of years to extract
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Revenue | 18,993,688.0 | 18,950,973.0 | 20,529,570.0 | 26,289,240.0 | 23,948,091.0 | Total
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As previously mentioned the project is expected to cost more than $3.7 billion and will be funded by the World Bank and the International Financial Corporation. The total costs have two major sections i.e. the Field System of more than $1.5 billion and the Export System at approximately $2.2 billion. The Field System is geared towards the development of Chad's Doba oil fields that includes the construction of related infrastructure and facilities and drilling of around 300 wells. The Export System incorporates the construction of a 670-mile, 30-inch pipeline from Chad's Doba oil fields to Kribi's Atlantic coast in