Robust Exploration and Production Sharing Agreements Using the Taguchi Method

Saad Balhasan, Mohammed Alnahhal, Brian Towler, Bashir Salah, Mohammed Ruzayqat and Mosab I. Tabash
Additional contact information
Saad Balhasan: Chemical and Petroleum Engineering Department, American University of Ras Al Khaimah, Ras Al Khaimah P.O. Box 10021, United Arab Emirates
Mohammed Alnahhal: Mechanical and Industrial Engineering Department, American University of Ras Al Khaimah, Ras Al Khaimah P.O. Box 10021, United Arab Emirates
Brian Towler: Retired from Chemical Engineering School, University of Queensland, St. Lucia, QLD 4072, Australia
Bashir Salah: Department of Industrial Engineering, College of Engineering, King Saud University, P.O. Box 800, Riyadh 11421, Saudi Arabia
Mohammed Ruzayqat: Department of Mechanical and Process Engineering, University of Duisburg-Essen, Keetmanstraße 3-9, 47058 Duisburg, Germany
Mosab I. Tabash: Department of Business Administration, College of Business, Al Ain University, Al Ain P.O. Box 64141, United Arab Emirates

Energies, 2022, vol. 15, issue 15, 1-19

Abstract: The short- and long-term volatility of oil and gas prices has a wide-ranging impact on both parties of petroleum contractual agreements, thus affecting the profitability of the project at any stage. Therefore, the government (first party) and the international oil company (second party) set the parameters of their contracts in a way that reduces the uncertainty. The effect of price fluctuations on economic indicators is investigated in this paper. The Taguchi method is used for the first time to find the best-agreement parameters, which are the “A” and “B” factors, in the standard Libyan agreement. There are four “A” components from “A1” to “A4”, and four “B” components from “B1” to “B4”. The purpose is to reduce the variability in the response variables, which are the company take (the percent of net cash flow for the international company) and average value of the second-party percent share of production (ASPS). The noise factors considered in this paper are oil, liquefied hydrocarbon byproduct (LHP), and gas prices. The method was applied to a case study of oil field development in Libya. The results showed that “A3” and “A4” were the most important control factors that affect the ASPS, while “B2” and “B3” are the most important factors affecting the company take. To obtain robust results, the most important factors to reduce variability were also determined. The effect of control parameters on the average NPV may be worth more than USD 22 MM in the 1-billion-barrel oilfield case study. The results showed that, for a given combination of “A” and “B” factors with a certain company take, the mean absolute deviation (MAD) of the NPV of the second party was reduced by 18% if the optimal combinations of the levels were used.

Keywords: production sharing agreement (PSA); Taguchi method; oil and gas sector; Libya (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2022
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