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Economic Evaluation Workflow

This guide provides a tutorial on using the Economics module to evaluate project viability and quantify financial risk. You will learn to perform deterministic valuations, probabilistic Monte Carlo simulations, and sensitivity diagnostics.

Step 1: Scenario Identification & Cases Explorer

The first step is identifying which development or analytical scenarios require a financial valuation.

  1. Open Cases Explorer: This panel displays all groups and scenarios generated in previous modules (Analysis, FDP).
  2. Select Target Cases: Toggle the checkboxes for the cases you wish to study.
  3. Benchmarking & Comparison: Use the comparison tools to align multiple cases. For example, you can compare a “High Spacing” FDP case against a “Low Spacing” case to see which provides better capital efficiency.

Step 2: Deterministic Base-Case Valuation (DEET)

Before exploring uncertainty, establish a solid “deterministic” view using the Deterministic Economic Evaluation Tool.

  1. Configure Financial Parameters:
    • Price Decks: Input your price forecasts for Oil, Gas, and NGLs. You can create different decks for different price environments.
    • Fiscal Framework: Define royalties, severance taxes, and corporate tax rates.
    • Project Life: Set the maximum duration of the project or the economic limit.
  2. Input Capital & Operating Costs:
    • CAPEX: Define Drilling, Completion, and Facility costs per well.
    • OPEX: Define fixed monthly costs and variable costs based on produced volumes.
  3. Calculate & Review Metrics: Trigger the valuation to see single-point metrics:
    • NPV (Net Present Value): The total value added to the company.
    • IRR (Internal Rate of Return): The project’s percentage return.
    • Payout: How many months until the initial investment is recovered.

Step 3: Probabilistic Risk Quantification (PEET)

Since inputs like Oil Price and EUR are never certain, use the Probabilistic Economic Evaluation Tool to quantify risk.

  1. Assign Probability Distributions: For your most critical uncertainties (e.g., Oil Price, EUR), choose a distribution type:
    • Normal: For variables with a symmetrical range of outcomes.
    • Log-Normal: For production variables (like EUR) that have a long tail of high outcomes.
    • Triangular: When you only know the absolute Min, Max, and Most Likely values.
  2. Monte Carlo Simulation: Set the number of iterations (e.g., 1,000 trials). The system will randomly sample your distributions to create a range of 1,000 possible NPVs.
  3. Interpreting the S-Curve:
    • The S-Curve (Cumulative Distribution) shows you the probability of success.
    • P90 (Low/Pessimistic): The value you have a 90% confidence in exceeding. This is your “downside” risk.
    • P10 (High/Optimistic): The high-upside scenario. There is only a 10% chance of exceeding this value.

Step 4: Advanced Sensitivity & Tornado Analysis

Use the Economics Sensitivity Module to identify which variables most significantly impact the project’s financial outcomes.

  1. Sensitivity Module: Open the sensitivity tab.
  2. Setup Variables: Define a range (e.g., ±20%) for critical input factors like Capital Investment, Operating Costs, and Royalty rates.
  3. Generate Visuals:
    • Tornado Chart: Identify which variable has the greatest impact on your NPV.
    • Spider Plot: Observe how the project’s economics evolve as a variable changes. This helps identify breakeven points.

Step 5: Decision Support & Professional Reporting

  1. Maximize for Detail: Use the maximize icon on any diagnostic plot to perform a detailed visual inspection of histograms or cumulative curves.
  2. Export the Economic Summary:
    • Summary Table: Download a report containing DEET and PEET metrics for all selected cases.
    • Visual Captures: Use the screenshot tool to export the Tornado Chart and S-Curve for project documentation.