Red flag report and field evaluation

Overview

A London based Private Equity company asked RISC’s London office to carry out an initial Red Flag report on the oil production from a field in South East Asia, which was being produced through a floating production, storage and offloading (FPSO) vessel, so that they could evaluate whether the production was secure enough for them to purchase the FPSO.

The challenge

RISC was asked to provide a fast turnaround Red Flag report for an Investment Board meeting to enable the client to either immediately reject the opportunity, or start more detailed Due Diligence. The Private Equity company was reliant on the field operator for data and information, and RISC were not provided with all the technical analyses or reports. RISC had to document the technical issues of the field and produce a report of key uncertainties for non-technical clients.

Our approach

Following the Red Flag report, RISC were asked to study key wells and investigate the timing of the pre-tax, cash flow breakeven point.

• Reviewed the dynamic reservoir simulations at a field and individual well level.
• Identified that field production was reliant on one well out of the dozen production wells after a key date.
• Verified that water break through wasn’t expected in the key well until late field life. FPSO water disposal would not be a problem.
• Identified that several in-fill drilling locations or side-track options existed as contingency for key well failure.
• Derived estimates for field FPSO Operations & Maintenance costs for economics and established that they were consistent with costs from other operators in the area.
• Generated pre-tax cash flow economics under several oil price and production scenarios.
• Established Reserves and Resource upside opportunities exist, all of which have the potential to extend field life (including oil bearing sands which are currently behind pipe, well workover and infill opportunities, and exploration upside.

Outcome

• RISC identified that plateau production was reliant on one well and calibrated the risks of failure and contingency plans.
• RISC identified that there were some lengthy unplanned shut downs in the last five years, one most notably related to FPSO Swivel problems, which were not expected to be repeated.
• Alerted the Private Equity company to the reliance on a few individuals in the operators field office to monitor the field production and intervention programme.
• RISC established that the cash flow from field production was within the uncertainty threshold of the Private Equity company and that the operator’s contingency for well failure was adequate.