Robust Exploration and Production Sharing Agreements Using the Taguchi Method

The short- and long-term volatility of oil and gas prices has a wide-ranging impact on both parties of petroleum contractual agreements, thus affecting the profitability of the project at any stage. Therefore, the government (first party) and the international oil company (second party) set the parameters of their contracts in a way that reduces the uncertainty. The effect of price fluctuations on economic indicators is investigated in this paper. The Taguchi method is used for the first time to find the best-agreement parameters, which are the “A” and “B” factors, in the standard Libyan agreement. There are four “A” components from “A1” to “A4”, and four “B” components from “B1” to “B4”. The purpose is to reduce the variability in the response variables, which are the company take (the percent of net cash flow for the international company) and average value of the second-party percent share of production (ASPS). The noise factors considered in this paper are oil, liquefied hydrocarbon byproduct (LHP), and gas prices. The method was applied to a case study of oil field development in Libya. The results showed that “A3” and “A4” were the most important control factors that affect the ASPS, while “B2” and “B3” are the most important factors affecting the company take. To obtain robust results, the most important factors to reduce variability were also determined. The effect of control parameters on the average NPV may be worth more than USD 22 MM in the 1-billion-barrel oilfield case study. The results showed that, for a given combination of “A” and “B” factors with a certain company take, the mean absolute deviation (MAD) of the NPV of the second party was reduced by 18% if the optimal combinations of the levels were used

Optimization of Exploration and Production Sharing Agreements Using the Maxi-Min and Nash Solutions

Cooperation between supply chain partners in the oil industry is essential, especially when oil prices suffer from fluctuations that affect the profitability of each party. An essential task in oil field development projects is to create an optimum agreement between the national oil company and the international oil company to guarantee agreement optimization. In this paper, the national oil company is the first party (FP) and the international oil company is the second party (SP). The paper’s purpose is to investigate the use of game theory to obtain the best agreement between the FP and SP in order to enhance the cooperation and reduce conflict. In this paper, Nash and Maxi-min solutions have been applied for the first time in a special type of petroleum agreement, called exploration and production sharing agreements (EPSA). This is conducted for a case study in Libya. The study considers nine negotiation factors (issues) in the EPSA, which are the share percent, the four “A” factors, and the four “B” factors, which are usually affected by the fluctuations of oil prices; and the study investigates their effect on the total payoff function, the net present value (NPV), and internal rate of return (IRR) for both parties. The Maxi-min solution has shown an improvement in the NPV and IRR of the SP, where NPV increased from USD 148 million to USD 195 million, and IRR from 15.65% to 17.01%. The Nash solution has shown a little more improvement than the Maxi-min solution in the NPV and IRR for the SP, where the NPV and IRR have increased from USD 148 million to USD 222 million and from 15.65% to 17.94%, respectively

An Example of Using Collaborative Online International Learning for Petroleum and Chemical Engineering Undergraduate Courses

This work describes an international collaboration experience carried out between our process design and petroleum property evaluation courses. This collaboration was developed as part of a partnership between the American University of Ras Al Khaimah (AURAK) in Ras Al Khaimah, United Arab Emirates, and Wayne State University in Detroit, Michigan, United States of America, using a program called Collaborative Online International Learning (COIL) from the State University of New York (SUNY) system. The COIL program provides training to faculty on engaging students in international and cross-disciplinary projects to promote skills needed in the current work force. The COIL training meetings facilitated pairing faculty of different disciplines in different parts of the world and provided a structure for developing a collaborative project. The collaborative project that we undertook in fall 2021, and which we detail throughout this article, was titled Upstream and Downstream of Petroleum Economics

Comparative risk evaluation and sensitivity analysis of the Libyan EPSA IV and its modified model LEPSA I

This paper extends the analysis of the fourth model of Exploration and Production Sharing Agreement (EPSA IV) and our proposed modification of the Libyan Exploration and Production Sharing Agreement (LEPSA I) to field applications. The paper focuses on risk evaluation and analyzing the sensitivity of the fiscal terms of EPSA IV model (cost recovery, A factors, and B factors) and the fiscal terms of LEPSA I model (initial production share, the geologic probability of success, and the oil reference price) on the profitability indicators of Net Present Value (NPV) and Internal Rate of Return (IRR). The deterministic analysis method and stochastic analysis method using the Monte Carlo Simulation have been used in this study. The two methods were used to show the probability distribution of the NPV and IRR on the basis of the random variables of fiscal terms in the two models of EPSA IV and LEPSA I, respectively. The simulation output of the development field scenario of enhanced oil recovery using CO2 injection showed that the cost recovery is a very sensitive term on the NPV and IRR in the EPSA IV model. But, the A and B factors in the EPSA IV model have different sensitivities on the NPV and IRR. The B factor 3 and B factor 1 are more sensitive on the NPV and IRR than are other factors. The B factor 4 and A factor 4 have shown less effect on the NPV and IRR than the other factors. Moreover, the simulation output showed that the initial share and reference price are more sensitive to the NPV and IRR than the probability of success on the basis of the LEPSA I model

Optimization of Exploration and Production Sharing Agreements Using the Maxi-Min and Nash Solutions

Cooperation between supply chain partners in the oil industry is essential, especially when oil prices suffer from fluctuations that affect the profitability of each party. An essential task in oil field development projects is to create an optimum agreement between the national oil company and the international oil company to guarantee agreement optimization. In this paper, the national oil company is the first party (FP) and the international oil company is the second party (SP). The paper’s purpose is to investigate the use of game theory to obtain the best agreement between the FP and SP in order to enhance the cooperation and reduce conflict. In this paper, Nash and Maxi-min solutions have been applied for the first time in a special type of petroleum agreement, called exploration and production sharing agreements (EPSA). This is conducted for a case study in Libya. The study considers nine negotiation factors (issues) in the EPSA, which are the share percent, the four “A” factors, and the four “B” factors, which are usually affected by the fluctuations of oil prices; and the study investigates their effect on the total payoff function, the net present value (NPV), and internal rate of return (IRR) for both parties. The Maxi-min solution has shown an improvement in the NPV and IRR of the SP, where NPV increased from USD 148 million to USD 195 million, and IRR from 15.65% to 17.01%. The Nash solution has shown a little more improvement than the Maxi-min solution in the NPV and IRR for the SP, where the NPV and IRR have increased from USD 148 million to USD 222 million and from 15.65% to 17.94%, respectively