Research On Economic Assessment Method And Its Application To Oil Sand Project

This paper studies the economic assessment method and its application to oil sand project.We assess the investment performance of oil sand project under the background of long-term low international oil prices,explore the possibility and pathway of pushing the project into profit and improving the benefit of enterprises through technological progress and evaluate the investment risk of oil sand project as well.Taking the Canadian oil sand project of a Chinese oil company as an example,this paper starts from the characteristics of oil sand project,such as high development cost,short stable production period,falling production cost as oil sand is an emerging industry,and the gradual process of technological progress and transformation.And the Three-Stage model and Hmodel of dividend growth are deformed to describe the pathway of technological progress /cost reduction,thus amending the traditional NPV economic evaluation model.By setting rational initial cost reduction rate,cost reduction cycle and single-well peak output,the project investment performance under different international oil prices and technical progress scenario are well studied.After the analysis,we found that the NPV model corrected by Hmodel in the baseline technology progress scenario can significantly increase the NPV of the project and reduce the breakeven WTI price.Even if the initial cost reduction rate is halved,the cost reduction duration is reduced by half or the cost decline is postponed for 10 years,the model will still enable the project to effectively reduce losses or even turn around under low oil prices.If the technological progress can reduce production costs while increase production,the net present value of the project will further increase,but the breakeven WTI price may not fall but rise,so the production increase must be accompanied by lower costs(or higher oil prices)in order to acquire positive benefits.Further,this paper verifies the corresponding relationship between the Three-Stage NPV model and the H-NPV model through comparative analysis,thus diversifying the path of technological progress / cost reduction,facilitating enterprises to choose the pathway according to their own actual conditions,and furthermore to make corresponding R&D investment,technology import and transformation programs,and finally turn into proactive from passive,control risk and lock in revenue in the complex and volatile international oil price environment.Considering that economic appraisal needs combination with risk evaluation and traditional NPV method has disadvantages in depicting the risk of uncertainty,this paper conducts a risk assessment of Canadian oil sand project from four aspects: economic risk,policy risk,technical risk and capacity constraint risk,using the methods of sensitivity analysis,scenario analysis and so on.The result shows that project may face higher price risk of international crude oil and dilution,risk of changing inflation rate and environmental protection policy,and the risk of variation in production and transportation costs,and targeted risk management measures are presented.