Economic Benefits Evaluation On A Oilfield Surface Engineering Transformation Programs

Jilin Oilfield Company, as a subordinate of China National Petroleum Corporation (CNPC), is a giant state-owned integrated enterprise, engaged in oil and gas exploration and production, field services, and other diversified businesses. Its mother company, PetroChina Company Limited, is a joint stock company with limited liabilities with its shares listed on the New York Stock Exchange and Shanghai Stock Exchange. The establishment of Fuyu Oil Plant in 1961 marked the full development and construction of Jilin Oilfield. After 50 years of development, Jilin Oilfield has entered the typical multiple wells and low production stage. Problems such as pipeline and facility aging, serious corrosion, environmental pollution, backward of oil gathering system, and high energy consumption are highlighting. Small scaled rebuilding and upgrading of old system can't solve these problems, so it's urgent to make a whole renovation of old systems. System renovation starts from Fuyu Oilfield. A series of countermeasures including well pattern adjustment, oil gathering and transportation system transformation, electric power system upgrading and energy consuming innovation are implemented. A scientific, sound, safe and high efficient development model is constructed, which lead the annual oil production climb up to1000,000 tons. In view of success transformation of Fuyu oilfield, some innovation in terms of small or medium sized oilfield has been put into agenda. Focusing on A Oilfield with annual oil production of 90000 tons, study on economic effect evaluation on surface engineering transformation program is presented in this paper.Economic benefits appraisal is regarded as one part of feasibility study on construction project, which is essential for an enterprise to make a scientific decision on project investment. Economic benefits appraisal of a project is dependent on cost, time of project and quality. The economic evaluation will last for the whole lifetime of the project. No matter the project is in the prior period of construction or at the completion stage, economic benefits evaluation has a great significance. Better project evaluation practices lead to rational allocation of resources so as to improve the return ratio of investment. The preliminary economic appraisal is an assessment of the potential profitability of project. Undoubtedly, it can reduce the opportunity of blind investment and improve the use of capital, in that, the investment decisions can be made scientifically. Post evaluation is an assessment of the relevance, effectiveness and impact of a program or project that is carried out some time after its completion. The review of implementation experience after the termination of a project is helpful for the upgrading of project under construction to offer a scientific investment decision. This paper, is mainly concerned on the economic benefits appraisal of A oilfield, and is to carry out a preliminary economic appraisal of a project.The whole reformation of A oilfield surface engineering is generally regarded as technological expansion project or technology innovation project. Two methods are recommended to evaluate technological expansion project, which are volumetric appraisal method and incremental appraisal method. Volumetric appraisal is a method to make a comparison of data involved in the technology innovation project. If requiring the comparative analysis of exclusive project, only value type data can be used. Volumetric appraisal method doesn't cover expenses, division of income but can demonstrate the inspection results of relative effectiveness and absolute effectiveness. However, in volumetric appraisal method, the original assets should be regarded as an investment item. The difficulty and workload in assessment of original assets are great. In addition, volumetric appraisal method can't demonstrate the return of investment in technological expansion project, so in evaluation practices, the incremental appraisal method is widely used. For incremental appraisal, both value type data and effectiveness type data all can be adopted. Value type data is mainly composed of net present value, net time value, current expense and expenses during this financial year. Rate of return of investment, the internal ratio of return and net present value are usually treated as effectiveness type data. It's common to adopt net present value when using the value type data. The internal ratio of return is a typical effectiveness type data, which is called as the incremental net present value or incremental internal ratio of return. The evaluation process when using the incremental appraisal method should be as follows: (1) select the basic data and parameters; (2) make investment estimation; (3) evaluate the cost, expense and income; (4) prepare the economic appraisal report, (5) compute these economic appraisal data, (6) draw a conclusion.Economic benefits appraisal is made based on the comparative analysis of two programs related to whole reformation, on which value type data and effectiveness type data are employed. Through the dynamic and static analysis, the evaluation conclusion is obtained. The analysis starts from the investment estimation, upon which the investment plan and fund distribution are put forward. Then the operation cost of the project is calculated. Operation cost, which are caused by operation of a project and mainly consists of material cost, fuel cost, power cost, wages, revenue, welfare, maintenance fee, depreciation fee, net residual value of fixed assets and other direct costs. Selling and general administrative expenses and financial expense identified with the accounting period in which they are incurred are treated as period expense. According to computation, the incremental production cost regarding to before and after reconstruction is prepared subject to the classification of variable cost, fixed cost and operation cost. Then the income statement and profit distribution statement are edited based on the computation of sales revenue, value-added tax, resource tax, urban maintenance and construction tax, additional tax of education, income tax. When the production cost statement, income statement and profit distribution statement are prepared well; the incremental cash flow statement can be edited on the basis of recording of inflow and outflow of the cash related to the project.In judging profitability of a project, the Cash flow statement and profit and loss account are used and discussed in this paper. The evaluating index is chiefly composed of static evaluating index and dynamic evaluating index. The static evaluating index consists of return on investment, ratio of investment and profit and tax investment ratio, while dynamic evaluating index mainly refers to financial internal rate of return and financial net present value. On the basis of analysis of profitability, it's clear that NPT, ROI and return of investment are all higher than the hurdle cut-off Rate, on which profitability of this project is deemed good. Later sensitivity analysis is made in consideration of the effect of NPT on operation cost, investment amount and discount rate; it's found that the sensitivity of NPV on these factors should accordingly be operation cost, investment amount and discount rate. The results indicate that both two optional programs can pass the inspection. Comparative analysis between two options are made in respect of profitability and risk, based on which, the optional program one is selected. The implementation of option one is regarded as feasible with good economic and social benefits.