How To Conduct A Feasibility Study In Oil And Gas Industry
Undoubtedly, the feasibility study process in oil and gas is one of the challenging and risky activities, despite ensuring the presence of crude oil in a location. A detailed evaluation must be conducted to verify whether the exploration process is commercially attractive, as it is impossible to complete this except through the preparation and feasibility study in oil and gas
Let us explain what a feasibility study in oil and gas is, how it works, and its importance. Keep reading this article.
What is a Feasibility Study In Oil And Gas?
A feasibility study is an assessment that determines the likelihood of success or failure of a proposed project. The company's mission requires conducting a qualitative study to analyse the factors relevant to the project, such as technical, economic, and legal considerations. The feasibility study can also identify current and potential future issues and problems that could arise from pursuing the project.
Finally, it will reach an assessment that gives an answer to the most critical question: Is this project worth the investment?
A feasibility study in oil and gas also helps companies manage oil and gas projects, including determining how they will operate, identifying potential obstacles and competition, analysing the market, and selecting the amount and source of financing needed to grow the business. It can also help develop
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marketing strategies to convince investors and banks that investing in a particular project or business is wise
Once the feasibility study is complete, stakeholders should be able to understand all aspects of the project entirely. They can then determine whether or not they want to move forward with the project!
What is the Importance of a Feasibility Study in Oil and Gas?
Feasibility study in oil and gas is critical when contemplating undertaking a new project. This is due to several reasons, including:
• Identifies valid reasons to advance or veto a project idea
• Improves the focus of the project team on objectives.
• Provides valuable information for the next steps after the study.
• Narrows potential business alternatives.
• Evaluate current and needed resources and technology.
• Enhances the success or failure rate of the project by assessing all variables
• Estimates the return on investment
What are the main steps of a feasibility study in oil and gas?
The feasibility study for any new project, particularly (feasibility study in oil and gas projects), follows a set of critical steps to complete the study. They are below:
1- Conduct a Preliminary Analysis
The primary purpose of the preliminary analysis is to screen project ideas before investing extensive time, effort, and money. Two sets of activities are involved
• The First Set
It includes describing or outlining the possible target markets, unique characteristics of services and scope of work by answering such questions, including:
o Does the project serve a currently unserved need?
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o Does the project serve an existing market in which demand exceeds supply?
o Can the project successfully compete with existing projects in the same market in terms of price, location and availability?
• The Second Set
It includes determining whether there are any insurmountable obstacles and problems. If the answer is “yes”, then it indicates that the chance of success of the project is slim as the difficulties increase:
2- Prepare a Projected Income Statement
Considering the expected income growth curve, the anticipated income must cover direct and indirect costs. Such Factors that determine this statement are services provided, fees for services, volume of services, and revenue adjustments.
3- Conduct a Market Survey
A good market survey is crucial. An outside firm should be hired if the company has yet to have several experts in this field to conduct this survey. The primary objective of a market survey is a realistic projection of revenues relative to global market conditions. The main steps include:
• Define the geographic influence on the market.
• Review population trends, demographic features, cultural factors, and purchasing power in the community.
• Analysing competing engineering firms' services to determine their significant strengths and weaknesses. Factors to consider include pricing, product lines, promotional activities, quality of service, consumer loyalty and satisfaction, and sales.
• Estimate expected market share.
• Estimate market expansion opportunities.
4- Plan Business Organisation and Operations
At this point, the organisation and operations of the business should be planned in sufficient depth to determine the technical feasibility and costs involved in start-up, fixed investment, and operations. Extensive effort is necessary to develop detailed plans for Equipment, Merchandisingmethods, Facility location
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and design, Availability and cost of personnel, Supply availability and Overhead (e.g., utilities, taxes, insurance)
5- Prepare an Opening Day Balance Sheet
The Opening Day Balance Sheet should include the project's assets and liabilities as accurately as possible when the project begins and before it becomes profitable.
Therefore, a list of assets must be prepared to carry out project operations. The list should include items, sources, costs, and available financing methods
6- Review and Analyse All Data
This review is critical. You Reexamine the Projected Income Statement and compare it with your list of desired assets and the Opening Day Balance Sheet. Given all expenses and liabilities, ask yourself if the income statement reflects realistic expectations
Never lose sight of analysing risks and contingencies. Consider the possibility of significant changes in the current market that could alter expectations.
7- Make a "Go/No Go" Decision
All preceding steps have been aimed at providing data and analyses to decide whether to proceed. If the study indicates that the company should yield at least the required minimum income and have the potential for future growth, it is a "positive" decision to start (Go). Any indication indicating otherwise should be withdrawn (No Go) and not taken risks.
Additional considerations are taken into account when making a decision:
• Is there a commitment to make the necessary sacrifices in the future in terms of time, effort and money?
• Will the project satisfy long-term aspirations?
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What are the most important types of the feasibility study in oil and gas projects?
There are numerous feasibility studies that the consulting team can perform before the company decides to implement the project on the ground. Among the most crucial feasibility studies in oil and gas are the following:
• Technical Feasibility
Technical feasibility includes studying and checking for accessibility to technical resources within the organisation. If those resources already exist, you must then determine if the technical team can customise the technology into new working systems for the project.
It is not only about the right technical resources; the equipment and devices also need to be evaluated to ensure they have the proper hardware and software for the proposed plan
• Economic Feasibility
The economic feasibility includes everything economic and financial about the project. This feasibility allows the company to prepare and analyse a costbenefit statement. This helps provide decision-makers with a detailed list of total costs and expected profits, including accidental expenses.
This is so that during or after the project, they may anticipate any potential unforeseen monetary challenges
• Operational Feasibility
Operational feasibility assesses how well a proposed and drawn-up plan fits within the existing business environment. If developed or modified, will current purchasers still use these services?!
Some variables that affect this analysis's outcome are the amount of technical support, the usefulness of the proposed plan to the company and customer satisfaction with the current system
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• Legal Feasibility
Before beginning a project, it must be ascertained that all legal aspects of the proposed project and the extent to which the company's policy adheres to the legal rules and requirements in that specific geographical area. In short, total legal approvals must be obtained to begin.
• Schedule Feasibility
Studying the expected schedule to carry out the work and complete the project is essential. To ensure the success of the proposed plan, all investors must define and obtain approval for specific timeframes for the business
An example of a feasibility study in oil and gas:
A real-world example of an oil and gas feasibility study is India's Jicarilla Apache Reservation, which covers over 850,000 acres of land in north-central New Mexico. This reserve belongs to the Jicarilla Apache National Company, one of the largest mineral companies in the San Juan Basin.
This reserve includes nearly 200,000 acres that are currently off-limits to oil and gas development to preserve the environmental integrity of the land. However, this area also contains a precious hydrocarbon reservoir underground.
Since most of the nation's revenues result from financial modelling aspects of the oil and gas industry, the company is keen to study the reserve to fully understand the potential of hydrocarbon reserves in the land because of its essential role in achieving its financial stability and future growth.
The reserve management signed an agreement with RETTEW Company to conduct a feasibility study of oil and gas in the region and evaluate the project to determine the possibility of starting gas and oil production in this susceptible area for investment in this field. The RETTEW management met with the tribal departments and the local council. Before launching the project, it began to study all aspects and challenges of oil and gas and the environment
Above all, the company sought to document current operational conditions, identify natural resources, conduct a detailed analysis of reservoirs and wells, evaluate potential water sources, develop several production scenarios and
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strategies and resource protection guidelines, and prepare a matrix outlining land development options
Ultimately, the company started producing oil using horizontal drilling and hydraulic fracturing to access oil and natural gas reserves underneath sensitive resource areas. This approach will allow natural resources to be successfully protected while still generating revenue through oil and gas extraction.
In conclusion,
The London Premier Centre Training is honoured to offer Oil and Gas Project Management Training Courses in Dubai. Here, we can only advise you to follow one of them to learn more about the management sector in oil projects.
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