Sensitivity analysis

Sensitivity analysis is the most useful tool for assessing the total
effectiveness and the global impact of economic risks.

Spider diagram for P8 - I7 option

18000

16000

14000

12000 Exchange rate

Oil price $
NPV [0.1] $m

10000 Taxes
8000 Total production
CAPEX(mln)
6000 Fixed OPEX $
Gas price $
4000

2000

0
-60% -40% -20% 0% 20% 40% 60%
% variation

Figure 1. Sensitivity analysis of the second alternative to

illustrate how input value variations impact net present value.
 P8I7's Tornado Diagram

60%
7
-60%
6

5
Categories

0 2000 4000 6000 8000 10000 12000 14000 16000 18000

NPV[0.1] in $m

Figure 1.1 “Tornado Chart for P8-I7 option”

First, this research is conducted to foresee the degree of variation effect (±

20% , ±40% and ± 60%) in the exchange rate ,gas price ,CAPEX, oil price,
OPEX , production and so on. The NPV is shown to be very sensitive to
changes in, production rates, tax rates and the price of oil in the
highlighted graph. So long as oil price and total production values are
trending upwards, NPV will increase. Furthermore, a rise in taxes will have
a negative impact on NPV.However the other criteria such as OPEX ,
CAPEX and gas price has little impact on the value of NPV. Taking
everything into account, a 20% increase in total production and oil prices is
enough to trigger a 21.1% and 21.9% increase in NPV value, respectively.
 Risk mitigation
Decisions and next steps for the project should be made with risk
assessment and prevention in mind. The sole approach used to analyze
and explain the risks at this stage of the project is sensitivity analysis due to
the lack of information obtained. In order to analyze various risks and
determine the value of getting more information, more sophisticated
methods such as Monte Carlo simulations, comprehensive DTA and extra
value of data approaches may be utilized. Following the results of a
thorough risk assessment, appropriate action plans to lessen the impact of
identified dangers should be developed. After looking into many factors, it
became clear that the currency exchange rate was the single most
important factor in the project. There are several options for handling
potential dangers. One frequent practise is to pay an insurance company to
take on one's risks in exchange for a yearly premium. The practice of
inviting other oil corporations to join a project in order to divide up the risks
is another common method. Given that Xenon is the project's operator and
major owner, seeking partnerships for field development and distributing
inherent risks looks logical and may assist firm ensure its cash flow,
enabling it to participate in additional oil FDPs within zone.

References
 Frank Jahn, M. C. M. G., n.d. Hydrocarbon Exploration and Production. 2nd Edition
ed. 1998: Elsevier Science.
 Byrne, J. P., 2000. E&P Business, and Economics. Edinburgh: s.n.