Evaluation of investment decision criteria for international petroleum exploration and production companies and a case study

Oil is a fungible global commodity that essentially has a single worldbenchmark price. Therefore, a supply disruption anywhere in the worldaffects oil consumers everywhere in the world. Despite past progress, oil stillplays a significant role in the world economy. For instance, the transportsector alone relies on oil for 97 percent of its energy needs. Because thetransport sector remains nearly wholly dependent on oil, consumers cannotquickly reduce consumption in response to higher prices.World?s largest consumer of oil is the United States. It accounts for 25percent of global daily consumption, but holds less than 3 percent of theworld?s proved oil reserves. The Middle East, by contrast, holds between 57and 65 percent of the world?s proved oil reserves. World demand for oil isexpected to increase substantially over the next 10 to 20 years. World oildemand is projected to increase even more substantially, by more than 50percent—from 78 mbd to 120 mbd—over the same period. The world willincreasingly rely on opec nations, particularly Saudi Arabia, to supply the oilneeded to meet future demand. The federal Energy InformationAdministration (eia) projects Middle East opec production to increase from 21mbd in 2003 to 38 mbd by 2025.The most important issues in the petroleum projects followingdiscovery are the oil price, production level, investment amount andproduction costs. Compensation of the investment and operation expensesand generating profit are depending on Revenue from oil sales. Unlessdiscovery of efficient oil reserves the value of works will be zero.In the petroleum project, project evaluation and controlling begin withthe signature of the agreement and to go on all life of the project. Explorationinvestments with high risk should be check carefully each phase of theproject. Thereby, company can measure to achievement to their goal andexpectations. Therefore, project should be test always with the beginningassumptions, and compare with realizations in each phase.The first chapter of the thesis, explaining petroleum and historicalimprovement of the sector, economic view of the major oil companies and oilmarket. It was given lots of statistical highlights concerning the petroleumeconomics. Also, general organizational structure of the oil companies wasexamined.In the second chapter, petroleum exploration and productionactivities were evaluated in a financial perspective. Principles of financialfeasibility for the international exploration and production projects wereexplained. Also some international organizations which providing projectfinancing for investment projects are explained.In the third chapter, given the information?s of an international project(reserves, capex and opex, production, oil prices etc.) and the project wereevaluated with methods explained in chapter two. Some technique and somepoint of views were told in order to control the factors that can easily affectthe international petroleum project activities.