Linda Stephen

Price, cost and exploration sensitivities of prospective activity levels in the UKCS: an application of the Monte Carlo technique

Abstract Building on previous work this paper develops a probabilistic economic model using the Monte Carlo technique to project activity levels in the UK Continental Shelf. The modelling emphasises the importance of oil and gas prices, the investors hurdle rate of return, changing prospectivity, and the exploration effort. Activity in the medium term is found to be highly sensitive to oil and gas prices, development costs and exploration effort. Field investment may fall very substantially and the oil production decline rate could be fast from 2000. To sustain higher activity levels further technological advances and their widespread adoption are essential.

Risk:reward sharing contracts in the oil industry: the effects of bonus:penalty schemes

Abstract Partnering and alliancing among oil companies and their contractors have become common in the oil industry in recent years. The risk: reward mechanisms established very often incorporate bonus/penalty schemes in relation to agreed base values. This paper examines the efficiency requirements of such schemes. The effects of project cost and completion risks on the risk: reward positions of field investors and contractors with and without bonus/penalty schemes are examined with the aid of Monte Carlo simulation analysis. The schemes increase the total risk for contractors and have consequence for their cost of capital and optimal risk-bearing arrangements within the industry.

The economics of petroleum exploration and development west of Scotland

Abstract This paper examines the economics of oil and gas exploration and development in the West of Scotland region. A considerable exploration effort has resulted in some discoveries but the overall success rate has been quite low. The region is comprised of several distinct geological basins. To date the Judd Basin has experienced the best discovery rate. Expected returns as measured by expected monetary values are generally low, confirming the high-risk nature of the region. The most economical field development concept depends to a large extent on a combination of field size and water depth which vary markedly from basin to basin. In typical cost conditions at an

Can the Transfer of Tax History Enhance Later Field Life Transactions in the UKCS

18 price returns to investors in medium and large-sized fields at the development phase are positive, but at

The Implications of Different Acceptable Prospective Returns to Investment for Activity in the UKCS

14 only when costs are relatively low are positive returns in prospect. Stand-alone gas developments are very unlikely to be viable in current market conditions. The fuller exploitation of the whole region requires higher oil and gas prices and /or significant innovation and technological progress.

The economics of field cluster developments in the UK continental shelf

To maximise economic recovery from the UK Continental Shelf it is generally agreed that assets should be in the hands of those investors who are best willing and able to achieve this. Transactions in mature fields in the UKCS should therefore not be discouraged by the tax system. This study compares the post-tax remaining net present value of mature fields from the perspective of both potential sellers and buyers with emphasis on the comparative tax relief for decommissioning costs. The economic modelling was conducted on (1) a set of representative model fields, and (2) a set of representative real fields. It was found that when the asset transactions took place in late field life the effective decommissioning tax relief for the buyer was often less than that for the seller, resulting in the remaining NPV of the buyer being less than the remaining NPV of the seller, thus discouraging the asset transaction. Transfer of the tax history of the seller to the buyer as an element in the transaction can remove this discouraging feature.

Recent and prospective developments in natural gas markets in the UK and Continental Europe

This paper examines the effects of different investment hurdle rates on capital expenditure and production relating to new oil and gas fields in the UK Continental Shelf over the period 2017-2050. Financial simulation modelling, including the use of Monte Carlo technique to model future fields, is employed along with a large database of discovered but undeveloped fields. The investment hurdles employed are (1) real IRR of 10%, (2) real IRR of 15%, (3) minimum NPV of £10 million, (4) NPV/I ≥ 0.3, and (5) NPV/I ≥ 0.5. The last 2 hurdles reflect significant capital rationing. At oil prices of

The Hypothetical Scottish Share of Revenues and Expenditures from the UK Continental Shelf 2000 – 2013

50 many projects fail even the least demanding hurdle. At

Optimizing Oil and Gas Depletion in the Maturing North Sea with Growing Import Dependence

60 price many more projects pass the hurdles but use of the NPV/I ratios result in much lower investment and production over the period.

The Short and Long Term Prospects for Activity in the UK Continental Shelf: the 2011 Perspective

This fine collection of original essays is in recognition of Colin Robinson, who has been at the forefront of thinking in energy economics for over 30 years. Energy in a Competitive Market brings together both prominent academics and practitioners to honour his outstanding and unique contribution. The authors cover a wide and fascinating selection of topics incorporating the whole spectrum of energy economics. In doing so, they examine the belief that markets are the key to the effective allocation of resources, a notion which arguably applies as much to energy as it does to any other commodity.