Question

One alternative to accelerate oil well production is to install a booster pump at the wellhead to reduce the pressure drop between the oil reservoir and the oil gathering station (onshore) or production platform (offshore). Make an economic analysis to verify if the production increment (between with and without booster pump) is economically attractive. The following data from an oil well subsea boosting project is available: Subsea equipment installation cost: $ 1.5 million 1 MW (Mega Watts) Pump system unit cost: $ 25.0 million Deep-water vessel rent for pipeline laying: $ 40 million total cost Overhead cost: assume 10% to total investment cost The installation and construction of the boosting system will be performed in one year. The revenue of this project is generated by oil well production increment using the booting system. An increment of 5,000 bopd (barrels of oil per day) in the first year of operation (after one year for installation and construction) is predicted, then, it will decline by 10% every year for a study period of 10 years. For example, 5000 bopd (initial increment), then 4500 bopd (in the next year), 4050 bopd, 3645 bopd, etc. Assume the oil well operates 330 days per year. The remaining 30 days, the well will not produce because it will be in maintenance (also called workover). Assume the well will produce oil only (no water). The market value of this equipment will be negligible at the end of the 10-year study period. Use MARR = 20% Calculate the present worth (PW) for this project assuming an oil-selling price of $40 per barrel and a production cost of $15 per barrel. In addition, add a constant value of $5 million per year for energy cost to run the pump boosting system. Is this project economically attractive? Draw a cash flow diagram for this project

Answer 1

using NPV and discounted cash flows we can evaluate project attractibility

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