Integrated Investment Appraisal and Risk Analysis of an Undeveloped Oil Field Project in Libya

The Murzug region in Libya has an immense potential for oil production. As a result of the perishable nature of raw materials, it imposes a huge effect on the economy. The oil production plant will process high profit and help to the growth of the region. The aim of this study is to evaluate the economic potential of an undeveloped oil field in the Murzug Basin, south of Libya. The thesis aims to provide a financial model to serve as a guide for the future investment in oil field development program in remote area, the southern desert region of Libya. This thesis presents financial analysis study involving financial and sensitivity analyses. The study utilises a financial analysis approach to the problem of identifying and investigating the factors that control and effect the finances of the studied project. Thus, the study uses a financial and sensitivity analyses and draws on data obtained from an existing exploration activity and using it as an adjacent or an analogue to NC101 oil field and development project. This oil field is located south of Libya in the Murzug basin and is called the Al Shararah Field. I have personally made a site visit to the AL Shararah field and have interviewed several geologists, engineers and managers in order to collect accurate information and use them as reference to my thesis. The oil production will generate a positive NPV of 313 million usd dollars and an IRR of 17%, which means the project will generate enough profit from the owner’s perspective. The study also shows that the project will generate enough cash flow to pay its debt obligation. From the cash flow we can observe that the project will generate enough cash to cover its debts as the ADSCR and LLCR average ratio are 3.06 and 3.45 respectively. As for the sensitivity analysis we have identified six risky varaibles which are oil price, foreign inflation (USA) , tariffs per barrell , investment cost overrun, discount rate and the proportion of oil exported . The project was most sensitive to oil price, tariffs per barrel and foreign inflation. As for investment cost overrun the project was not sensitive towards it at all. The project's risks were evaluated using a Monte-Carlo simulation. The distribution of probability is used to show the uncertainty related to the key project variables. The simulation of Monte Carlo analysis was taken for oil prices, tarrif per barrel and foreign inflation .