Ken Montgomery, Niksam, Singapore, concludes his explanation of the importance of thorough candidate analysis when selecting new vessels for FPSO conversion.

Decision tree analysis

Returning to the earlier discussion on whether an Aframax tanker was the correct choice in light of the off take being 250 000 bbls and the vessel having a cargo capacity of 750 000 bbls; the owners had convincing arguments in support of the Aframax as the correct choice if additional capacity was required.

A decision tree analysis was performed, which is a quick effective way to make a decision whether or not to invest in a project. It must be emphasised it is only the start of the decision making process and more sophisticated financial analysis is required to determine if the investment decision is sound.

The method requires any decision to be based on the principle that the percentage of success and the percentage of failure = 1; so if Psuccess = 0.6 then Pfailure must = 0.4 - monetary values (discounted to NPV) are assigned throughout the tree. The FPSO was to be spread moored and 100 year environmentals were used. Due to the Aframax being larger than the MR, more expense was required for its mooring arrangement. The additional mooring cost, higher price on the hull, additional blasting and coating and additional cost of process plant for the ‘wished’ additional cargo, etc. weighed against the probability of one or two wells being processed.  The tree was put on a projector and owners and investors invited to input different probabilities, but ultimately it was not possible to realistically massage the numbers to support the purchase of the Aframax.

Concluding remarks

Class surveyors and superintendents perform a qualitative assessment of the condition of a cargo tank based upon what they see and their own personal experience; if they are fortunate there may be a Finite Element Analysis to guide them where the to look for cracks. Using qualitative analysis based on experience (personal, or group from the internet) and quantitative analysis based on metrics it is possible to create a scenario that allows a considered decision to be taken and the likelihood of it being the correct one more probable than a qualitative decision.

Financiers base their investment decisions on certain assumptions weighted to some extent in order to provide a ‘boxed’ scenario, and if the end figure lies within the box, it is a good decision to take.

Owners and investors are recommended to consider using a qualitative and quantitative decision process to allow them to reduce their risk to financial loss. This paper considers the purchase of an FPSO but the methods can be applied to other financial decisions.  

References

1. BP Statistical Review World Energy June 2012
2. Fischer Tropsch
3. Douglas-Westwood
4. http://en.wikipedia.org/wiki/Sulfuric_acid

Read the article online at: https://www.oilfieldtechnology.com/drilling-and-production/24092013/finding_the_right_candidate_part_3/