This chapter focuses on project development & the risk & return evaluation

of oil and gas projects.

We begin with an overview of the various steps involved in the decision making & project development processes, explained through a case study, and talk about upstream project development stages and the associated risks elements.

The reading then explains the concept of unitization and the creation of

Joint Development Zones.

This is followed by calculations and interpretations of project economic metrics such as NPV, IRR, WACC and risk adjusted return.

Then we describe potential risk exposures related to the use of contractors and

sub-contractors in petroleum projects. The various contractor relationships & their environmental & socioeconomic impact along with safety risk issues are discussed here.

We finally conclude by identifying and calculating key cash flow elements in an oil project and their determinants – capital investment, wellhead price, gross revenue and operating expenditures, as well as simple royalty and tax payments,

explained again with the help of a case study.