Minimum Economic Field Size and Probability of Success of Conventional Hydrocarbon Discoveries, in the Light of the New Open Uruguay Round Framework

Abstract

Recently, it was announced the first oil recovered in surface onshore Uruguay, in Norte Basin. Additionally, operators and Uruguayan National Oil Company (ANCAP) have identified many prospects, which are almost ready to be drilled, at different water depths offshore Uruguay. Therefore, it is relevant to know the minimum volume of hydrocarbons contained in hypothetical conventional discoveries, necessary to make the projects economically feasible in the light of the new Open Uruguay Round fiscal regime, both onshore and offshore. The prospective resources distribution was calculated for several prospects, which were identified with 2D and/or 3D seismic, and are located onshore and offshore at various water depths. The probabilistic cash flow analysis including forecasts for production, capital and operating costs, product prices and the new fiscal regime was conducted in all cases to define the breakeven oil prices and the Minimum Economic Field Size (MEFS). Finally, the Net Present Value, the probability of geological success and the probability of development were considered to complete the expected monetary value and the probability of commercial success calculations. Many aspects can be taken away from this work. Firstly, as a general trend, the MEFS and the breakeven oil price required for the prospects increase with water depth, reflecting the rise in expenditures. However, specific prospect parameters may cause a separation from this clear trend. Likewise, the decision to sell or reinject natural gas has a significant influence on project profitability. Additionally, the probabilities of geological success, in the abscense of productive analogues in the south Atlantic, are still low in all cases, reinforcing the status of frontier exploration of the Uruguayan sedimentary basins. Hence, with the objective to overcome this weakness and encourage exploration, the minimum government take established in the new Open Uruguay Round regime is fairly low. In conclusion, projects onshore and offshore could be equally profitable and successful, requiring higher size of discoveries and price of products as water depth increases. However, because of the remarkable difference in investment and costs, onshore opportunities fit for smaller companies’ portfolios and ultradeepwater prospects are almost exclusive for the majors. This paper presents new and useful information to geoscientists, engineers and managers of International Oil Companies (IOCs) evaluating exploratory projects in Uruguay, as it includes the novel fiscal regime in force. Finally, it proposes an innovative methodology to calculate the MEFS, breakeven oil prices and the probability of commercial success from the stochastic model.