Oil and gas projects can require investment of many billions of dollars, and can have development times of a decade or more.
The amount and timing of the capex spend are critical model inputs and are therefore crucial to the decision making process. Capex modelling has a huge impact on value creation and the future profitability of the project.
As a project is developed and engineered, the accuracy and level of detail of the capex estimates and the schedule of spend evolve. S-curves are widely used for modelling project capex profiles.
In our latest ebook we explain the origin and application of the s-curve, and provide you with flexible worked example modules in excel, built to the FAST standard, that you can immediately apply in your own modelling.
Investment decision making in the Oil and Gas industry normally follows a defined process:
The financial model evolves throughout each stage and modellers will find themselves having to update the capex estimates and profile throughout the process.
The excel files provided with the ebook demonstrate a flexible worked example S-curve calculation that allows for efficient updating of capex profiles.
Observation and experience gained since the inception of the O&G industry has established the relationship between capex and the S-curve. S-curves are widely used for planning, forecasting and control of cost, time and resources of a project.
Diagram above: S-curve (asymmetric)
The worked example excel files are based on the S-curve equation set out in the ebook. This is a powerful tool that modellers can use to manipulate the time variation of capex, prior to a full capex schedule being available.
As your project develops, the amount and schedule of the capex will change, and the Financial Modeller will be faced with numerous “what-if” questions.
These questions will come from decision makers and stakeholders such as management, the Executive Committee and the Board.
For those scenarios where the schedule estimate is altered, an existing S-curve, expressed in the format of percentage capex versus percentage of time, can be used as the basis to produce a revised capex profile for the new schedule.