OR301.1 AIMMS Project: December 2009
1
The background to the problem, and the first part, Part (a)
International Developers of Oil Limited (known to themselves as IDOL but to their competitors as
‘Fallen’ (c.f. Tiger Woods)) is a company that explores for and – if the exploration is successful –
then produces and exports crude oil. IDOL employ three senior drilling engineers with a great deal
of experience, called Tom, Dick and Harry, and have been considering whether or not to drill for
oil in a potential oil field close to the coast of Ireland.
IDOL are considering hiring up to and including ten drilling rigs, which are substantial boats
(converted trawlers) that can be positioned over a desired spot on the ocean floor, and then drill
individual wells deep into the ocean bed. If the forecasts from Tom, Dick and Harry are
economically encouraging for a four-year development period, IDOL will assign these rigs to be
shared by the respective teams run by Tom, Dick and Harry per year. The number of rigs in each
individual team need not be integer, and can vary from year to year. For example, in year 1 Tom
may control 5 rigs, Dick 2.75, and Harry 2.25. In this example Harry’s team might use three rigs
for the first three months, and then pass control of one of them to Dick during the rest of the year.
Some wells will be “dry”, so that they have to be abandoned prior to the rig being moved
elsewhere. The cost of abandoning a dry well (i.e. sealing it in reinforced concrete) is £4,000. If
and when a well is seen to be productive (i.e. successful, not dry), a pipeline will be built from it to
a gathering station onshore. On average the cost of building and installing such a pipeline is around
£70,000, but more specific cost data are provided in Table 1 below. The gathering station can be
assembled and commissioned very quickly (probably over just one weekend) at a cost of
£1,500,000. The cost of running the gathering station will be £300,000 p.a.
In this Part (a) ignore Corporation Tax. Costs incurred to date as part of IDOL’s pre-project
estimation stage are £20,000, £15,000, and £30,000 respectively for the three teams, and can thus
be treated as “Year 0” data. There are no other Year 0 data.
At this preliminary stage IDOL are employing you to assess the potential profitability of the
venture. Your contract arrangements with IDOL will be handled by Dr Brendon O’Maulem, who
is IDOL’s Chief Executive (and has no understanding of mathematical programming)
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