Risk Analysis and Economic Evaluation of Oil and Gas Prospects Offshore Uruguay

Abstract Hydrocarbon exploration offshore Uruguay has been historically very limited. Only two wells were drilled in shallow waters in 1976. Additionally, there are about 30.000Km of 2D reflection seismic, including 6.400Km acquired in 2011. ANCAP, the National Oil Company, offered offshore areas for exploration and exploitation of hydrocarbons to interested international oil companies through Uruguay Round 2009. This bidding round successfully ended with the signature of contracts for two areas. This auspicious result, in addition to the interest shown by the upstream industry, have lead ANCAP to launch the Uruguay Round II. The most recent 2D seismic survey allowed the definition of several prospects. This article presents the risk analysis and economic evaluation of the potential development of three prospects offshore Uruguay, of different type and depth, considering for each one the possible occurrence of dry natural gas, natural gas with condensate or oil. The Estimated Ultimate Recovery, Net Present Value, Internal Rate of Return and Payout were determined for each prospect by Monte Carlo simulation. Different development concepts were considered for each case. A sensitivity analysis of the key variables (reservoir parameters, hydrocarbons price, capital and operational expenditures) was carried out showing the impact of each variable on the project. Finally, a decision tree analysis was used to compute the Expected Monetary Value of each case, incorporating the geological chance of success and minimum economic field size as inputs for the assessment. ANCAP signs the exploration and production contracts with offshore Contractors on behalf of the Uruguayan Government, and is in charge of designing the fiscal regime ruling in Uruguay. Thus, this analysis includes the latest and real terms applied in Uruguay Round II, including ANCAP's participation and actual market considerations; consequently it provides a very good estimation of the oil company's take. This work constitutes the first evaluation of this kind applied to prospects offshore Uruguay, therefore its results and conclusions are significant for those international oil companies that might be interested in carrying out exploration activities in offshore Uruguayan basins.