THE ROLE OF ACCOUNTANT IN THE PROJECT EVALUATION IN THE OIL SECTOR

(A CASE STUDY OF SHELL PETROLEUM DEVELOPMENT COMPANY, PORTHARCOURT)

By

OKEKE, IFEOMA VIVIAN

Presented To

Department of Accountancy

ABSTRACT

This project work centres on the "Role of an accountant in project evaluation in the oil sector". The objectives of this research work are to know whether project evaluation process have a better cash flow stream, to know what extent has project evaluation helped the oil sector and finally know if project evaluation and selection has improved the sector. In the course of this study, the researcher decided to use simple random sampling. The population of the study consist of 200 management staff as well as board of directors and a simple size of 100 was selected through random sampling method. The primary data collected were analyse using table schedule arithmetic differences in figure simple rate and also simple percentage. The finding reveals that project evaluation is a strong instrument for obtaining ivan from bank and other financial institutions. It further shows that the accountant uses project evaluations in project selection to make best project selection, in addition to choosing the best cash flow, it also provide the accountant with the best investment option in a company. Some of the recommendations are that the accountants should carry out project evaluation in every industry. Also is that they are advised to master the use of Net present value (NPV) technique in evaluating a project since it improves the time value of money. Further research on the topic is highly recommended as no knowledge is a waste.

TABLE OF CONTENTS

Title page

Approval page………………………………………………………………i

Dedication ………………………………………………… - ……………ii

Acknowledgement……………………………………… - ……………iii

Abstract……………………………………… - - - - ……………iv

Table of contents……………………………………… - - - - ……v

CHAPTER ONE

10 Introduction ……………………………………… - - - - …1

11 Background of the study ……………………………………… - …1

12 Statement of problem……………………………… - - - - …2

13 Objective of the study………………………………… - - - …3

14 Significance of the study……………………………… - - - …4

15 Research Question ……………………………… - - - - - …4

16 Formulation of Hypothesis…………………………… - - - …5

17 Scope of the study……………………………… - - - - - …5

18 Brief history of shell petroleum development Company of Nigeria Limited (SPDC) ……………………………… - - - - - …5

19 Definition of terms ……………………………… - - - - …7

CHAPTER TWO

20 Literature Review ……………………………… - - - - …9

21 Research Question / Hypothesis theories……………………………9

22 Current literature in theories mode Hypothesis and Research Question - 11

23 The scope and nature of project evaluation ………………………13

24 Cash flow implication and project evaluation ………………………15

25 Corporate goal and investment decisions……………………………16

26 The Role of the Accountant in project evaluation…………………18

2 7 The oil sector and project Evaluation………………………………20

28 Summary of the literature review……………………………………21

CHAPTER THREE

30 Research Methodology……………………………………………25

31 Design of the study …………………………………………………25

32 Area of the study……………………………………………………25

33 Population of the study……………………………………………25

34 Sample method……………………………………………………25

35 Instrument for data collection ……………………………………26

36 Validity of Reliability …………………………………………… - 26

37 Distribution and retrieval of instrument……………………………27

CHAPTER FOUR

40 Data presentation and Analysis ……………………………………29

41 Analysis of data……………………………………………………29

42 Test of Hypothesis …………………………………………………32

CHAPTER FIVE

50 Summary, conclusion and Recommendation………………………41

51 Summary of findings ………………………………………………41

52 Conclusion …………………………………………………………41

53 Recommendation ………………………………………………… - 42

54 Limitations to the study…………………………………………… - 42

References…………………………………………………………44

Appendix A ………………………………………………………46

Appendix B…………………………………………………………47

Questionnaires ……………………………………………………48

CHAPTER ONE

10 INTRODUCTION

11 BACKGROUND OF THE STUDY:

Project evaluation is of dual approachies vis-à-vis project and evaluation Project has to do with investment decision which most of these decision have direct effect in future profitability of the organization either because they will result in an increase in revenue generation or they will bring about an increase in efficiency and cost effectiveness

In the other hand, evaluation has to do with the analysis of the investment to see whether it will be worth while to take decision on it to go ahead with project's expenditure

According to Aguolu, PSO (1997:6), investment decision are the use of funds on long term asset What is needs in investment should be known before financing decision are to be taken "A peculiar aspect of these is that they involve future benefits which are in many cases difficult to predict" The investment decision of a firm are commonly known as "capital budgeting or capital expenditure decision"

Aguolu, PSO, (1997:70) "states that capital budgeting decision is that financial decision which involves and outlays of funds in the present time with the expectation of future returns over a period of time" He further sees project evaluation as one of the capital budgeting processes

On this note, the accountant plays the role of evaluating the suitability and adaptation of the project in relation to profit maximization

Also in evaluation, the project is expected to be measured on incremental basis what determines The acceptance of a project is it's changes (positive in the firms revenue, cost and tax strems) In constrast, cash flow that would be changed by the investment should be degraded

12 STATEMENT OF PROBLEM

As a technical and creative aspect of human endeavour, project evaluation requires knowledge, experience and all the skills needed by a manager to perform job effectively The accountant's competence in project evaluation during his choice of a project for the organization is very significant

In a free market economy, it is generally delivered that the investors pays for an investments or intrinsic value The problem here is how can the accountant relate the future cash flow, the expected returns and the degrees of risks associated with the investment to the market economy

Another problem the accountant may be faced with is the calculation formula, he will effectively use the evaluation formula so as to rationalize between theory and practice These constraints will help us to investigate into the failure of project or why project brings in lower value of expected cash flow stream, even after being selected through the modern method of project evaluation

PURPOSE OF THE STUDY

Although the industry under study is a heavy and capital intensive sector and hence require a large sum of money to invest in any commitment of fund and such activities requires a thoroughful analysis to ascertain the validity of such project and the profitability of cash flow streasm This work is aimed at

- Knowing the role of an accountant in project evaluation and selection

- Ascertaining the extent that project evaluation has helped a corporation in maximizing the benefits projects wvaluation and selection

- To ascertain the usefulness of project evaluation in determining the future cash flow stream of project

14 SIGNIFICANCE OF THE STUDY

The importance of every research work is to contribute to the existing knowledge Therefore, this study will be important to entrepreneurs and managers of corporations in that it will guide them in decision taking / making on investments Some of the importance also includes

- It will benefit financial analysis as a source of data collection

- It will equally benefit students as a research materials and other seekers of knowledge

15 RESEARCH QUESTIONS

For the purpose of these research, the researcher has decided to formulate some research questions that will serve as a guide and they are as follows:

1 Does project evaluation process have a better cash flow stream?

2 To what extent has projector evaluation helped the oil sector?

3 Has project evaluation and selection helped in improving the corporate health of the organization

16 FORMULATION OF HYPOTHESIS

From the statement of the problems and objective of study, the following hypothesis are formed

Ho: Does project evaluation process has better cash flow streams

Hi: Does project evaluation process have a positive cash flow streams

Ho: Project evaluation and selection helps in improving the corporate health of the organization

Hi: project evaluation and selection have a positive change in corporate health of the organization

17 SCOPE OF THE STUADY

The critical goals of any project evaluation is to determine whether or not given projects are technically fensible, commercially viable economically desirable, managerially sound and financially profitable The main trust is cost and benefit implications of the project

18 BRIEF HISTORY OF SHELL PETROLEUM DEVELOPMENT COMPANY OF NIGERIA LIMITED (SPDC)

The shell petroleum Development Company of Nigeria, (SPDC) is the largest oil and gas exploration and production company in Nigeria It is the operator of a joint venture in which NNPC holds 55 percent and AGIP 5 percent The company was granted an exploration license in 1983 and discovered the first commercial oil field at Olvibiri in Niger-Delta in 1958 leading to the export of oil in 1958 the federal government acquired 55 percent of the company in 1973 forming the basic of the joint venture operation that persist till today The company assumed its present day name in 1979 the percent joint operating agreement and memorandum of understanding were last revised in 1991

Today, SPDC products are almost half of the country's oil form more than 90 oil fields in the Niger Delta area it also supplies 95 percent of the country's commercial gas and its oil mining lease area of 31,000 square kilometers containing more than half the country's oil and gas reserves The sale of the company's operation is massive involving an infrastructure of 6200 kilometers of pipeline, more than 100 wells, 87 production stations, 7 gas plants and two large oil terminals at forcados and Bony The company is divided into two divisions, which are based in Warri in Delta State and Port-Harcourt in Rivers state with a small corporate centre in Lagos, these division operate with a high degree of autonomy and are running in each by a general manager who reports to the managing director in Lagos SPDC has about 5000 staff of which 95 percent are Nigerians, the majority form the oil producing areas In addition the company has another 80,000 contract staff mostly Nigerians

SPDC supports a future development and progress for communities in the areas of operations and its aim is to work along side all communities in harmony The company's social investment programme dates back to the Igbo's when it launched an agricultural initiative in Ogboni area this spread out the Niger-Delta and beyond not only helping farmers by improving crop varieties and farming technique by setting them up in business through co-operatives More recently, SPDC has been increasingly involved in development project in the fields of health educated and vocational training linking up with non-governemtnal organisatios, which have expertise in th3ese specialist areas The company's health progroamme involves refurbishing and re-equipping existing rural hospitals SPDC also grant scholarship each year to students from oil producing communities and sponsors science teachers in rural schools in addition, the company is running vocational courses to unemployed youths to help them acquire skilsl set-up their own small business all this, in addition to producing basic amenities including water schemes, roads, school, building and clinics etc

DEFINITION OF TERMS

PROJECT: Project simply means commitments of financial resources with future benefit expectation

EVALUATION: It is the process fo analyzing the investment to see whether it will be found worth while to take decision on it to go ahead with the project expenditure

CAPITAL BUDGETING : By this, it means the process of planning or purchase of assets whose returns are expected to continue beyond one year

SPDC: Shell petroleum redevelopment Company of Nigeria

PROJECT EVALUATION: This means analyzing a given project which has to do with investment decision To see whether it will be profitable to go ahead with project expenditure

ACCOUNTANT: An accountant is seen as a manager who uses the accounting information to make financial decisions In modern computers, an accountant makes uses of computer application in the computation process of accounting work for effectiveness of efficiency of accounting information

OBJECTIVES OF FTHE STUDY

The objectives of the study are as follows:

i) To investigate whether project evaluation process have a better cash flow stream

ii) To examine the extent that project evaluation has helped the oil sector

iii) To know if project evaluation and selection has improved the growth of the organization