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· No handwritten homework will be accepted. If you use equations, you must also contain a nomenclature.

· Use the HW spreadsheet for homework questions below.

· Clearly state all assumptions. 

· Turn in your Excel HW spreadsheet with your written homework and please have your spreadsheet neatly organized.

1.  You have been asked to design a gathering system with a five well connect package. All five wells are to IP (Initial Production) at the same time. Preliminary engineering work has determined that a ten mile 10″ header along with a six-unit compressor station will be needed to move the new gas production. With the following information provided below, run an economic analysis to determine if the proposed project is viable. If the proposed project is not viable, what recommendations would you make to improve the economic viability of this project? For instance, can the five well connect package stand on its own or will additional volumes need to be added (i.e. third party) to justify the project cost or can you lower your material costs; for example, pipeline cost, compression costs or labor cost (within reason) to make the project economical?

a. Choosing only one of the five wells, use the Arps’ and Duong’s type curve models to determine what type of well you are dealing with, all five wells are assumed to produce from the same formation. For example, is this well unconventional or conventional and clearly state why?

i. Plot the type curve and show the curve in your write-up.

b. You have been given seven years of future production data, see HW 4 excel datasheet, from the producer; however, all projects are required to have a ten-year minimum contract term; therefore, you will need to estimate future production. Use empirical concepts (i.e. type curves or a curve fitting technique of your choosing) to project future gas production for years eight, nine and ten.

i. Plot this curve showing production data and your prediction model.

c. Economic metrics are as follows for this project:

i. Company hurdle rate is 13%

ii. Minimum contract length is 10 years.

iii. Pipeline cost for this area is assumed to be $100,000/in-mile.

iv. Labor cost are assumed to be 30% of year 1 revenue and 30% of subsequent yearly revenue.

v. Six-unit equity compressor station is ~ $13,000,000/station.

vi. Use 20% contingency for cost estimates.

d. Deliverables

i. Using the economic example shown in the lecture 4 slides, and in the HW 4 spreadsheet, to provide a similar economic analysis in spreadsheet form.

ii. Determine the following based on the economic metrics provided in item “c”: minimum cost of service, IRR, NPV @ 13%, payback period, total revenue, total profit and total labor cost over the ten-year period.

iii. Plot a Break-Even Cost Analysis showing the payback period for no contingency and with contingency dollars.

iv. What is the total profit, revenue and labor cost of the project over a ten-year period?

v. If one can reduce all material costs by 10% what is the new IRR and NPV @ 13% with the same cost of service found in d(ii)?

Lecture 4 Example Modified

Use this example for your HW assignment. This example differs from the lecture example.
Problem Statement
A 10″ well connect has been proposed to move 30,000 Mscfd of gas to a trunk line along with a six unit equity compressor station. It is assumed that the new well connect will take approximately one year to build and revenue will not be realized until year one. The flow rate will decline by 90% during the first year of well life and 5% for the remainder of the contract. The contract term is for 10 years only. Assume Labor cost will be 40% of year one revenue for time zero and time one and 30% of the revenue of each of the following years there after. Determine the cost of service at 13% company hurdle rate? What is the NPV of this project at the company hurdle rate? What is the actual rate of return for this project assuming a cost of service to be $0.5/MMBTU?
Initial values
Initial Flow Rate = 30000 Mscfd
Pipe Diameter = 10 in Nominal Pipe
Pipe Length = 5.25 miles
Gas Heating Value = 1100 BTU/scf
Costs and Price
Cost of Service = $0.0500 /MMBTU
Pipe Cost = $100,000.00 /in-mile
Six Unit Equity Compressor station = $13,000,000 /station
Company Hurdle Rate = 13.00%
Assume Labor cost is 30% of Revenue
Volumes
Volumes (Mscf) 0 10,950,000.00 1,095,000.00 547,500.00 273,750.00 136,875.00 68,437.50 34,218.75 17,109.38 8,554.69 4,277.34
Energy Volumes (MMBTU) 0 12,045,000.00 1,204,500.00 602,250.00 301,125.00 150,562.50 75,281.25 37,640.63 18,820.31 9,410.16 4,705.08
Cost Analysis
Year 0 1 2 3 4 5 6 7 8 9 10
Pipeline Costs = -$5,250,000.00
Compression Costs = -$13,000,000
Labor Costs = -$87,928,500.00 -$87,928,500.00 -$6,594,637.50 -$3,297,318.75 -$1,648,659.38 -$824,329.69 -$412,164.84 -$206,082.42 -$103,041.21 -$51,520.61 -$25,760.30
Income = $0.00 $219,821,250.00 $21,982,125.00 $10,991,062.50 $5,495,531.25 $2,747,765.63 $1,373,882.81 $686,941.41 $343,470.70 $171,735.35 $85,867.68
Total Costs = -$106,178,500.00 -$87,928,500.00 -$6,594,637.50 -$3,297,318.75 -$1,648,659.38 -$824,329.69 -$412,164.84 -$206,082.42 -$103,041.21 -$51,520.61 -$25,760.30
Sum Total = -$106,178,500.00 $131,892,750.00 $15,387,487.50 $7,693,743.75 $3,846,871.88 $1,923,435.94 $961,717.97 $480,858.98 $240,429.49 $120,214.75 $60,107.37
Total Costs with 15% contingency = -$122,105,275.00 -$101,117,775.00 -$7,583,833.13 -$3,791,916.56 -$1,895,958.28 -$947,979.14 -$473,989.57 -$236,994.79 -$118,497.39 -$59,248.70 -$29,624.35
Sum Total with contingency = -$122,105,275.00 $118,703,475.00 $14,398,291.88 $7,199,145.94 $3,599,572.97 $1,799,786.48 $899,893.24 $449,946.62 $224,973.31 $112,486.66 $56,243.33
No Contingency Dollars
NPV @ 13.00% = $32,141,370.18
IRR = 40.271%
Profit = $56,429,117.63
Payback Period ~ 6.53 yrs
With Contingency Dollars
NPV @ 13.00% = $3,154,058.96
IRR = 15.270%
Profit = $25,338,540.42
Payback Period ~ 8.28 yrs

Volume Decline

Volume Decline 0 1 2 3 4 5 6 7 8 9 10 10950000 1095000 547500 273750 136875 68437.5 34218.75 17109.375 8554.6875 4277.34375

Years

Volume (Mscf)

HW 4 Well Data

Cum Volume
2019 75,296
2020 114,613
2021 79,534
2022 54,812
2023 46,212
2024 46,096
2025 38,134
2026 ???
2027 ???
2028 ???
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