Financial Analysis for Storage in the Identify Stage

Objective

To identify and communicate the likely range of financial outcomes for the storage aspect of the project

Major Deliverables

• Initial financial model of the project giving an initial output of the range of likely outcomes (P10, P50 and P(90)
• Initial qualitative discussion of the key risks and cost drivers for the project and how these contribute to the initial range of outcomes

Tasks

Specific tasks include the following: 

• Identification and construction of a base case (P50) cost (including contingency and risk amounts) for the storage solution on the basis of the storage options identified.  This will be based on the costs data-book prepared during this stage of the project development
• Identification and construction of the upper bound (P90) and the lower bound (P10) cost outcomes for the storage solution – these will be based on the cost data-book prepared during this stage of the project development and will take into account the best and worst case outcomes for the storage options as they are understood at the identify stage
• Creation of an initial cost model with inputs relevant for the technical, operational and financial aspects of the injection and storage facilities.  This model will extend over the lifetime of the project.  This model would be at an annual granularity
• An initial financial analysis for the storage site options identified using the base case and upper and lower bound outcomes should be undertaken to provide an indicator of the range of potential outcomes.  This will be a high level discounted real cash flow analysis of the costs and benefits associated with the project taking into account: 
• Capital costs
• Capital cost spend profile – likely to be stated as a percentage of total capital cost spent in a given year
• Anticipated injection rate of CO2 – likely to be expressed in tonnes per annum
• Discounting factor
• Return required by the project sponsors
• Operating costs per annum – where the details for operating costs are not sufficiently well understood, parameters such as percentage of capital cost per annum might be used to give an order of magnitude measure of these costs
• Simple tax provision assumptions
• Benefits from project operation – avoided carbon costs, Enhanced oil recovery revenues etc)
• Net present cost calculation for the base case (P50), upper (P90) and lower (P10) bounds
• Any residual cost of the assets at the end of the project
•  An initial qualitative analysis looking at the main cost drivers and risks such as:
• Capital inflation – market pressures
• Supply chain issues including:
  • Scarcity of drilling rigs in high oil price world,
  • Other specialist resource constraint
  • Potential lack of competitive pressures in tendering
  • Injection rate risks
  • Site capacity risk
  • Leakage risk
• Set out an initial profile for risk reduction for the project that aligns with the activities in the project programme.  The funding body will need to understand how the risks are being mitigated and at what point in the project cycle so that a view can be taken as to how the project is achieving demonstration objectives and delivering value for money
• Identify how the project addresses the funding programme objectives and the costs within the project that

Examples

Key Personnel

• Project Manager and staff
• Cost estimation work-stream lead
• Finance work-stream lead