Modifying the Libyan fiscal regime to optimise its oil reserves and attract more foreign capital part 2: application to CO2‐EOR project in Libya

• Author: Saad A. Balhasan,Jennifer L. Miskimins,Brian F. Towler
• Date: 01 September 2013
• Published date: 01 September 2013
• DOI: http://doi.org/10.1111/opec.12001

Modifying the Libyan fiscal regime to

optimise its oil reserves and attract more

foreign capital part 2: application to

CO2-EOR project in Libya

Saad A. Balhasan,* Brian F. Towler** and Jennifer L. Miskimins***

*PhD Candidate, Chemical and Petroleum Engineering Department, University of Wyoming, Laramie, WY,

USA. Email: sbalhasa@uwyo.edu; sbalhasan@yahoo.com

**Professor of Chemical and Petroleum Engineering, CES Fellow for Hydrocarbon Energy Research,

University of Wyoming, Laramie, WY, USA

***Associate Professor, Colorado School of Mines, Golden, CO, USA

Abstract

This paper extends the analysis of our proposed modification to the first model of Libyan Explora-

tion and Production Sharing Agreement (LEPSA I) to field applications. Four decision-making

models are coded in a spreadsheet program to estimate profitability indicators for two development

scenarios. These scenarios are primary and secondary recovery methods with water injection and

enhanced oil recovery byinjecting carbon dioxide. The paper concludes that the economic profit for

the foreign investor (second party) under LEPSA I was improved compared with EPSA IV.Also,

Libya increased its oil reserves with a reasonable decrease of its production share. Moreover, the

results showed that the profit indicators under the current production shares (cost recovery) of the

fourth model of Exploration and Production Sharing Agreement (EPSA IV) were not favourable to

the second party. Because of that, the second party would not be motivated to make a decision to

investany money for an oil development projects in Libya. Finally,the paper investigates how EPSA

IV should be redesigned to maximise the Libyan National Oil Corporation (first party) oil reserves

and give more attention to the economic objectivesof the second par ty.

Nomenclature

A The A value at the indicated ratios of the cumulativevalue

of petroleum received by second party overthe cumulative

petroleum operations expenditure by the SP

B The B value at the indicated levels of the average total

daily production of oil and LHP

C Constant of proportionality, %

CAPEX Capital expenditure, US$

CAPEXincremental Incremental capital expenditure, %

270

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CAPEXinitial Initial capital expenditure, US$

CAPEXSR% Capital expenditure of secondary recovery,%

CAPEXTR% Capital expenditure of tertiary recovery, %

$CAPEXinitial Initial capital expenditure, US$

$CAPEXSR Capital expenditure of secondary recovery,US$

$CAPEXTR Capital expenditure of tertiary recovery,US$

CO Cost oil, %

COR Cost oil revenue, US$

DS Development share, %

FP NCF (t) First party net cash flow at yearn, US$

FPS First party share, %

Gp Gas production, MMcf/d

HCPVI Injected hydrocarbon pore volume

LHP Liquid hydrocarbon by product

LHPp Liquid hydrocarbon by product production, stb/d

Np Oil production, stb/d

NpbBonus of oil production, US$

OPEX Operating expenditure, US$

$OPEXSR Operating expenditure of secondary recovery,US$

$OPEXTR Operating expenditure of tertiary recovery,US$

OPEXSR% Operating expenditure of secondary recovery,%

OPEXTR% Operating expenditure of tertiary recovery, %

P Probability, %

Pg Gas price, US$/Mcf

Plhp Liquid hydrocarbon by product price, US$/b

Po Oil price, US$/b

Por Reference oil price, US$

POS Probability of success, %

Pot Oil price at time, US$

rk Capitalcost

R Ratio of the cumulative value of production received by

second party over the cumulative petroleum operation

expenditures incurred by the second party

SiInitial share, %

SP NCF (t) Second party net cash flow at yearn, US$

SPS Second party share, %

pEXS Excess profit, US$

pEXSg, pEXSlhp, pEXSo Excess profit of gas, LHP and oil, US$

CO2-EOR project in Libya 271

OPEC Energy Review September 2013© 2013 The Authors.

OPEC Energy Review © 2013 Organization of the Petroleum Exporting Countries

1. Introduction

The present fiscal regime in Libya is Exploration and Production Sharing Agreement IV

(EPSA IV). The Libyan fiscal regime under EPSA IV is not a favourable model for the

second party (SP), especially for a heavy investmentlike enhanced oil recovery (EOR) and

offshore projects. Therefore, EPSA IV mayhave serious effects on the field development

methods and the volume of recoverable reserve calculations. In part one of this series of

papers, a new model, LibyanExploration and Production Sharing Agreement I (LEPSA I),

was introduced,aiming to maximise the reser ves for the LibyanNational Oil Cor poration

(LNOC), designated the first party (FP), and profit for the foreign investor, designated the

SP.A coded spreadsheet program has been built for the EPSA IV and LEPSA I models for

the two developmentscenarios. The four programmed models are incorporated with deci-

sion variables of oil rate, gas rate, liquid hydrocarbon product (LHP) rate, oil prices, gas

prices, LHP prices, exploration costs, development costs, operation costs, oil production

bonuses, cost recovery, cost of capital, equity split models and profit indicators. The

models were used to evaluate the profitability indicators, net present value (NPV) and

internal rate of return (IRR). Because the FP is focused on the EOR to raise its oil produc-

tion and oil reserves, many of the studies carried out by the FP on many reservoirs deter-

mined the acceptable EOR methods for the FP’s reservoirs’ circumstances. Some basic

assumptions on CO2flooding1provided byOccidental Oil Company (OXY) are utilised in

this study.These r ules were based on experience, applied by OXY in their oil fields.The

hyperbolic decline model is used when the relativepermeability dominated secondar y and

tertiary recovery processes, such as water and EOR, by injecting CO2(Masoner, 1998).

Based on this fact, the hyperbolic decline model has been selected for the field production

profile for forecasting the water and CO2injection scenarios. For the second development

scenario, the two models assumed that the CO2project has been started 12 years after the

beginning of the field production. The project will take 3 yearsto complete the CO2infra-

structure upgrades and 1 year to develop the production mechanism. The oil prices

are assumed to fluctuate between US$ 80 and US$ 90/b, the gas prices are assumed to

fluctuate between US$ 4 and US$ 5/MMBtu and the condensate prices can be assumed to

fluctuate between US$ 80 and US$ 95/b for the agreement life. Moreover, the economic

indicators NPV and IRR were used as tools to determine which model is preferable for the

SP. In spite of all 24 cases in the second scenario plans of the oil recovery having a cash

flow income–investment–income,the dual IRR did not appear in the cash flow of EPSA IV

and LEPSA I models. The feasibility study for the developmentscenarios for the four pro-

grammed models has showed that the LEPSA I model is more attractiveto the SP than the

current model of EPSA IV.The LEPSA I model has shown how the increase in investment

with the step function will increase the SP share of profit and the field recovery factor

(RF) for the FP. In spite of the reinvestment for the CO2injection project, the maximum

Saad A. Balhasan, Brian F. Towler and Jennifer L. Miskimins272

OPEC Energy Review September 2013 © 2013 The Authors.

OPEC Energy Review © 2013 Organization of the Petroleum Exporting Countries