Investment Analysis for Monetization of Marginal Oil Reserves: An Alpha Field Joint Operation Case Study

Abstract

Challenges and opportunities are faced in the development of marginal oil reserves that are often uneconomical to exploit conventionally. The main objective of this study was to determine whether the project is a viable investment based on the given assumptions, as well as whether the potential returns can justify the risks associated with marginal oil reserves. The research method involved the use of key financial metrics such as Net Present Value, Internal Rate of Return, and Payback Period, using a discount rate of 10%, which is standard in the oil and gas industry. The results show that the project has a positive NPV of USD 124,462.38, an IRR of 13.13%, and a PBP of 4 years and 5 months. These results indicate that the project is financially viable, with returns exceeding the capital cost of the project. Further sensitivity analysis identified that oil prices and production levels are the most critical factors affecting the financial outcome of the project. Compared to the WACC of 10.25%, the IRR of 13.13% indicates that the project exceeds the minimum required rate of return, thus justifying the investment. The implications of this study highlight the importance of proper operational management and market risk mitigation to maintain profitability.