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1985-06-13
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RESERVE ECONOMIC ANALYSIS
Developed by First City National Bank of Houston -
Engineering Department
The following is a list of possible entries the user will need
to make a typical REAL (Reserve Economic AnaLysis) run. These
are the entries that the user should consider initially; however,
not all of the items may be needed. The data input form provides
a good check list to insure that the necessary information has
been covered for each evaluation and is repeated here in greater
detail.
1. Well identification
a. Well (and/or lease) name and number
b. Field (and reservoir) designation
c. State
d. County
e. Operator
2. General Information
a. Present worth month, year and discount rate
b. As of date
3. Production Information
a. Production start date
b. Phase(s) of production to be scheduled and the major
phase
c. Cumulative production
d. Production schedule
4. Product Prices and Operating Cost
a. Escalation parameters
5. Tax Information
a. Production and severance tax
b. Ad Valorem tax
c. Windfall profit tax
- Tier category
- Base price
- GNP deflator
- Tax rates
6. Ownership Information
a. Working interest before and after reversion
b. Net revenue interest before and after reversion
7. Investment Information
a. Time point of investment
b. Tangible or intangible investment
8. Other Consideration
Many entries are needed to sort, to retrieve or to
consolidate the cases involved in a project; they are
called masked items. Even though these items will not alter
the numerical output and could be ignored if the user so
desired, it is good practice to fill out these entries at
the time data is input so that future reference to any
evaluation can be more accurate. These masked items are file
number, name of the engineer(s) who did the evaluation, the
reserve category and all entires listed under well
identification.
The following is further explanation of the data input on an item
per item basis. A maximum of 77 pieces of data can be input into
REAL. This data is listed under general categories , such as;
descriptive input, production and economic data, masked items and
miscellaneous data and can be explained according to their
numerical order listed in the sample of the input screen.
DESCRIPTIVE INPUT
All items under descriptive input are self-explanatory. They
include the following:
ITEM CELL DESCRIPTION
1 B3 Name of the company that owns the appraised
interest
2 B4 Well (and/or lease) name and number
3 B5 Name of the field in which the well is
located. The reservoir name can also be
included in bracket if needed
4 B6 Name of county (or parish) on which the well
is located
5 B7 Name of state (or province) on which the
well is located
6 B8 Name of the company that operates the well
GENERAL RESTRICTIONS
For these descriptive items, the maximum number of characters
that will allow the input to be fully displayed on the screen is
36 characters. However, the output format will support a string
of up to 54 characters (part of which will be hidden on the input
screen).
MISCELLANEOUS DATA
ITEM CELL DESCRIPTION
7 G3 Month to which the Present Worth is
discounted. Should be input as a value and
could have one or two digits for the month
(plus a decimal point and a fraction of the
month if it is necessary to discount the PW
to some point other then first of the month).
Example:
Input 10 for October 1st
Input 8.5 for August 15th
8 G4 Year to which the Present Worth is discounted.
This is also the first year that the
output will calculate and display. Should be
input as a four digit value.
9 G5 File number is one of the masked items needed
for future operations, such as, saving a
file or retrieving a file.
10 G6 Name of the engineer(s) who did the evalua-
tion.
11 G7 Reserves category could be input as abbrevia-
tions such as PDP for Proved Developed
Producing, PDNP for Proved Developed Non-
producing, etc.
12 G8 As of date is the date only beyond which the
production is considered. In most cases this
is the same as PW date (items 7&8). This date
should be input as a label or as a date, the
as of date values are items 19 and 20.
PRODUCTION AND ECONOMIC DATA
13 A9 Initial working interest should be input in
percent.
14 B9 Initial net revenue interest should also be
input in percent.
15 C9 If the operating cost is a function of the
number of wells, it should be input as
$/well/month. This cost is additive to the
other operating cost (item 16).
16 D9 Operating cost in $/month or as certain
percent of the gross revenue regardless of
number of wells. Use the negative sign to
indicate this cost as a percent of gross
revenue.
Example:
Input 2000 if the operating cost is
2000/month, input -8.5 if the operating cost
is 8.5 percent of the revenue before taxes.
This cost is additive to the operating cost
(item 15).
ITEM CELL DESCRIPTION
17 E9 Ad Valorem tax is input as a percent of the
revenue before taxes.
18 F9 Major phase indicator is used to show if the
main phase of production is oil or gas.
If oil is the major phase, input 1
If gas is the major phase, input 2
19 G9 First month of production. The restric-
tion on this item is the same as the PW
month (item 7).
20 H9 First year of production. The restriction
is the same as on PW year (item 8).
The next 19 items contain three sets of value for the oil (7),
the gas (7) and the third phase (5) as follows:
21,28,35 B10-B12 Cumulative production in thousand units
(i.e. MBO, MMCF, etc...)
22,29,36 C10-C12 Initial product prices per unit of pro-
duction (i.e. $/bbl, $/mcf, etc...)
23,30,37 D10-D12 Production and severance tax in percent or
dollars per unit of production. Use the
negative sign if the entry is in dollars
per unit of production.
Example:
For the state of Louisiana, P&S tax is 12.5%
for the oil and 7 cents per mcf for the gas,
the input will be: 12.5 for item 23
-0.07 for item 30
24,31,38 E10-E12 Initial production in unit of production per
month (i.e. BOPM, MCFPM, GAL/mo., etc..
25,32,39 F10-F12 Final production in units of production per
month. If the entry is zero or left blank,
the default value for this input is the
actual economic limit (actual as opposed to a
calculated economic limit that will be dis-
cussed later in items 40 and 91).
ITEM CELL DESCRIPTION
26,33 G10,G11 Product classifications are input according
to the table below:
Classification Oil Tier Gas Type
1 1 N/A
2 2 102
3 3 103
4 N/A 104
5 N/A N/A
6 N/A 106
7 N/A 107
8 N/A 108
9 Other Other
27,34 H10,H11 Gross number of wells for gas and oil. The
number is used to calculate the operating
cost using item number 15.
40 B13 There are three methods of declining major
phase production. A code number (from 0 to 2)
is put in B13 to use that type of decline.
For subordinate phase decline see items 64 -
67.
0 When exponential decline is to be used
and the decline rate is calculated by
the program. In order to do so, the
user has to input the remaining re-
serves in thousands (item 41). The
program then estimates the economic
limit (calculated EL opposed to actual
EL mentioned in items F10-F12.)
1 When exponential decline is to be used
2 When a simulated hyperbolic decline is
to be used. This method used many con-
tinuous portions of exponential decline
of reducing declining rates and is much
easier to use then hyperbolic decline.
2 Can also be used for any unconventional
declining scheme, such as, one typical
of a waterflood response where produc-
tion increases, then levels out and
finally starts to decline in a more
conventional way.
41-46 C13-H13 Decline rates are input in percent. If the
declining code (item 40) is 0, item 41 would
be the gross reserves. If the declining
code is 1, one entry to item 41 will be
required. If the declining code is 2, up to
six continuous portions of yearly exponential
decline can be input. The decline rate for
following years will be the same as the
decline rate in the last (latest) entry,
unless manually input. (For more informa-
tion refer to manual inputting in Operating
Section).
Example:
To calculate the exponential decline with
known reserves of 40,000 Bbls (item 41) and
initial rate (item 24):
Item 40 41 42 43 44 45 46
Entry 0 40
For a well that will decline exponentially at
an annual rate of 25%:
Item 40 41 42 43 44 45 46
Entry 1 25
For a well that will decline 70% in the first
year, 60% in the second year, 50% in the
third year, 40% in the fourth year, 30% in
the fifth year and 20% thereafter. (A number
must be put in all related cell locations.):
Item 40 41 42 43 44 45 46
Entry 2 70 60 50 40 30 20
47 to C14 to Amount of gross investment in thousands of
dollars, six locations are available for the
first six years of well life. If it becomes
necessary to input additional investments
after the initial six years of well life,
these investments will have to be input
manually. All costs are expressed in today's
dollar.
Example:
Input the following gross investment schedule
YEAR AMOUNT($M)
1 100
2 0
3 100
4 0
After 0
B C D E F G
Item 47 48 49 50 51 52
Entry 100 0 100 0 0 0
54-59 B16,B17 After payout (APO) working interest in
percent.
55-60 C16,C17 After payout, net revenue interest in
percent.
56-6l D16,D17 Payout amount in thousand dollars or thou-
sand units of production of the major phase.
57-62 E16,E17 Gross/Net payout indicator
If payout is in gross amount, enter 1
If payout is in net amount, enter 2
58-63 F16,F17 Dollar/Unit of production indicator
If payout is in $M, enter 1
If payout is in thousand unit of major phase,
enter 2.
Example for two payout reversions:
For a well that will reverse to 50% WI and
40% NRI after PO of 250 $M gross and will
reverse to 40% WI and 32% NRI after PO of
520 MB net, the input looks like this:
Item 54 55 56 57 58
Entry 50 40 250 1 1
Item 59 60 61 62 63
Entry 40 32 250 2 2
64-67 B18-C18 Optional ratios to major phase. Two initial
ratios (items 64 and 66) and two final ratios
(items 65 and 67) are included and should be
input in unit/unit. These entries are
particularly useful when the production
ratios between the subordinate phases and the
major phase are changing. The changing will
be calculated logarithmically, meaning that
if plotted on semilog paper, the ratio will
decline (or incline) on a straight line.
If the subordinate phase declines at the same
rate as the major phase, put a 1 (one) in
location B18 and C18. The ratio is major
phase to subordinate phase production.
Example:
The condensate yield ratio of the appraised
gas well is changing from 100 B/MMCF to 50
B/MMCF, and the plant liquid yield ratio of
the same well remains constant at 2 gal/MCF,
the input will be:
Item 64 65
Entry .100 .050
Item 66 67
Entry 2
ITEM CELL DESCRIPTION
68 B20 Adjustment factor is input as a value from
0 to 1 to reflect the risk associated with
the reserves category of the appraised well.
A reasonable adjustment factor would be:
1.00 for established proved producing wells
0.80 for established proved shut-in wells
0.60 for newly completed shut-in wells or
behind pipe reserves
OTHER INPUT
70 J13 Base price, in $/B, of tier 1 oil for Wind-
fall Profit Tax consideration.
71 J19 Base price, in $/B, of tier 2 oil for Wind-
fall Profit Tax consideration.
72 J15 Base price, in $/B, of tier 3 oil for Wind-
fall Profit Tax consideration.
73 J2 Discount factor in percent.
74 J3 Inflation rate in percent, this inflation
rate is used to calculate future value of an
expenditure, of which the estimated cost is
in today's dollar.
75-77 J6-J8 Ceiling prices of oil, gas and the third
phase, respectively, in $/unit of production.
Note: (1) If production and severance tax is to be in
$/unit of production, a negative sign is
required.
OPERATING THE PROGRAM
After the data has been input, the user has several options
of which he can use one or more. These options are:
1. Revise the input. In this case, he needs to type the
"home" key to move the cursor to location A1 and begin
his revision from there.
2. The user thinks that the output is "correct", and he
wants to make a hard copy of this output. Normally, he
would have to set up a complex string of print commands
to accomplish this. However, with the user defined
functions (marcos in Lotus 123), he only needs to
perform a few simple key strokes. These strokes, which
are set up in a menu-driven fashion, will be discussed
in the next chapter.
3. The user may also want to save his output onto the disk
for future reference. Again, the user defined feature
can be used to simplify the saving procedure.
4. To start a new case. In this case, the user wants to
return to location A1 (by typing the "home" key) and
begin to input another set of data to the screen.
5. Input part of the output (such as production and
pricing schedule, number of the well...) manually.
This action overrides the formulas and labels of the
program. As a result, after manual inputting is used
the user has to retrieve REAL again if he wants to
use any of the erased formulas or labels.
Some of the manual inputting changes you can make by year are as
follows:
1. Working interest
2. Net revenue interest
3. Decline schedule
4. Schedule of production
5. Operating expenses
6. Investments
OPERATING MENU
The menu written for REAL can be shown as follows:
(1) (2)
[Alt A] [Alt B]
PRINT SAVE FILE REPLACE FILE RUN MANUAL
1. "Alt A" gives the option to print the file, save the input
and output portion of REAL, or to retrieve an already saved
file so you can work with it again.
2. "Alt B" calculates the program, or use F9. The manual moves
you to the section for manual input of production.
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