Feasibility Study Definition / Meaning

A Feasibility Study in the oil and gas industry is a comprehensive, multi-disciplinary evaluation conducted during the early stages of a project lifecycle. Its primary purpose is to determine whether a proposed petroleum development project is technically viable, economically profitable, and legally permissible. This study serves as a critical decision-making tool for operators, investors, and regulatory bodies, providing the evidence needed to either proceed to the next phase (typically Front-End Engineering Design, or FEED) or abandon the project.

Key Components of a Feasibility Study

A thorough feasibility study integrates three core pillars: technical, economic, and regulatory. Each pillar must be assessed in detail to provide a complete picture of project viability.

1. Technical Feasibility

This pillar examines the physical and engineering aspects of the project. Key questions include:

• Reservoir Evaluation: Is the hydrocarbon reservoir large enough and productive enough to justify development? This involves analyzing seismic data, well logs, core samples, and fluid properties.
• Drilling and Completion: Can wells be drilled safely and cost-effectively? This considers water depth (for offshore), formation pressure, temperature, and the need for advanced techniques like hydraulic fracturing or horizontal drilling.
• Facilities and Infrastructure: What surface facilities are needed (platforms, pipelines, processing plants, storage tanks)? Are existing pipelines or export routes available, or must new ones be built?
• Technology Readiness: Are the required technologies proven in similar environments? For example, a feasibility study for a deepwater field might evaluate the use of subsea boosting systems or floating production storage and offloading (FPSO) vessels.

2. Economic Feasibility

This pillar determines if the project can generate an acceptable return on investment. It relies on detailed financial modeling and sensitivity analysis. Common metrics include:

Economic feasibility also considers capital expenditures (CAPEX), operating expenditures (OPEX), production profiles, commodity price forecasts, tax regimes, and potential cost overruns.

3. Regulatory and Legal Feasibility

This pillar assesses the project’s compliance with all applicable laws, permits, and regulations. Key areas include:

• Licensing and Permits: Does the project have the necessary exploration, development, and production licenses? Are environmental impact assessments (EIAs) required?
• Environmental and Social Impact: What are the potential effects on local ecosystems, water resources, and communities? What mitigation measures are needed?
• Health, Safety, and Environment (HSE): Can the project be executed with an acceptable level of risk to personnel and the environment? This includes emergency response plans and safety case approvals.
• Local Content Requirements: Does the host country mandate a certain percentage of local labor, materials, or services?

Practical Industry Context

In practice, a feasibility study is not a static document. It is an iterative process that evolves as more data becomes available. For example, an early-stage study might rely on analog fields and regional cost estimates, while a later-stage study uses site-specific data and vendor quotes. The study is typically led by a project manager and involves geoscientists, reservoir engineers, drilling engineers, cost estimators, and legal advisors.

Usage Example: “Before committing $2 billion to the offshore development, the company completed a feasibility study that confirmed the field could produce 100,000 barrels per day at a break-even price of $45 per barrel, well below the current market price.”

Common Pitfalls and Best Practices

• Overly Optimistic Assumptions: Avoid assuming best-case production rates or cost savings. Use probabilistic modeling (e.g., Monte Carlo simulation) to account for uncertainty.
• Ignoring Decommissioning Costs: A complete feasibility study must include the cost of plugging wells and removing facilities at the end of field life.
• Insufficient Sensitivity Analysis: Test the project’s resilience to changes in oil price, production rate, and cost overruns. A robust study will show the project remains viable under multiple scenarios.
• Regulatory Blind Spots: Engage with regulators early to understand permitting timelines and requirements. Delays in approvals can kill a project’s economics.

Conclusion

A well-executed feasibility study is the foundation of sound project management in the oil and gas industry. It provides the confidence needed to allocate billions of dollars in capital, secure financing, and obtain regulatory approvals. By rigorously evaluating technical, economic, and regulatory factors, the study helps ensure that only the most promising projects move forward, reducing the risk of costly failures.