Introduction:

Business decisions involving asset acquisitions, lease-buy assessments, exploration drilling options, oil and gas field development, equipment purchases, and fiscal negotiations all require detailed economic analysis. Basic petroleum economics facilitates good understanding of the process underlying optimal E&P investment decision, strategy, and profitability of E&P projects.

The course presents how the economic value of oil and gas ventures and business can be determined and used in making rational economic decisions keeping in perspective reserves classification, production forecasting technique, time value of money concept, inflation, contractual arrangements, risk and uncertainty and geopolitics of oil and gas. The mechanics of estimating the effects of fiscal instruments and terms on total government takes, E&P economics, and take statistics are simulated in-class by participants using modeling tools.

Course Objectives:

By the end of this course, delegates will be able to:

·        Define reserves, costs, and factors affecting oil and gas prices

·        Identify the main components and construct cash flow projections for your upstream projects

·        Determine key elements and determinants involved in making oil and gas investment decisions with due consideration to fiscal arrangements

·        Understand and apply economic criteria to assess oil and gas industry projects under various fiscal regimes

·        Understand, evaluate and analyze both fiscal and production sharing contract terms worldwide

Who Should Attend?

Geoscientists, Reservoir Engineers, Production Engineers, Petroleum Engineers, Planning and Development Analysts/Executives, Commercial Analysts/Executive/Managers, Business Planners/Analysts/Executives/Managers, Production Sharing Executives/Managers, Project Executives/Managers, Petroleum Economists, General Managers, Finance and Account Executives/Managers

Course Outline:

Petroleum Economics Fundamentals: Structure and Conduct of the Industry 

·         Evolution and classification of the oil and gas industry

·         Strategic goals of oil and gas firms

·         Geopolitics and its impact on resource development

·         Overview of industry value chain analysis—upstream, midstream, downstream

·         Determinants of price of oil and gas, cost classification and estimation

·         Role of OPEC, IEA, OECD, IOC in price formation

Elements and Determinants of Petroleum E&P Investment Decisions

·         Classifications of resources and reserves

·         Reserves definitions and estimation methods

·         Key elements of proved reserves

·         Production decline equations and analysis

·         Production forecasting using spreadsheet

·         Economic life estimation

Defining and Classifying Costs, Present Value Concepts, Forecasting Net Cash Flow and Analyzing Profitability of Assets

·         Defining upstream cost and its classifications

·         Factors driving upstream costs and cost dynamics

·         Types of cost management systems

·         Cost effectiveness and efficiencies distinction

·         Capital sourcing for oil and gas projects

·         Project performance models

·         Capital recovery mechanisms

·         Cash flow classification, BIT or AIT; Real or Nominal

·         Cost of capital and hurdle rate

·         Time value of money concept

·         Present value concepts

·         Inflation rate and impact on decision indicators

·         Timing and frequency of discounting

·         Discounted cash flow model and analysis

·         Popular performance indicators—NPV; IRR; GRR; PO; AROI

·         IRR and its limitations

·         Screening and selection economics—MEI or NMEI

·         Decision rules and interpretations of indicators

·         NPV profile, Fisherian effects and incremental Economics

Descriptions and Classification of Petroleum Fiscal Regimes and Contractual Terms

·         Economic rent theory

·         Rent extraction spectrum

·         Why fiscal systems?

·         HG and firms objectives

·         Features of concessionary and contracture regimes

·         Fiscal instruments and contract terms

·         Contracts—JV, PSC, R&T, R-factor

·         Designing fiscal terms—what to look for?

·         Elements of PSC

·         Fiscal system comparisons

Petroleum Fiscal Systems Modelling, Economic Analysis and System Performance Measures

·         Cost recovery specifications

·         Profit oil sharing mechanism

·         Cost recovery items

·         IC vs ITA vs Uplift

·         PSC specific provisions and implications on project economics

·         PSC cash flow distributions

·         Commerciality threshold, ring-fencing and GPO

·         Stakeholder mutuality of interests and concerns

·         Measures of central tendency

·         Measures of variability and percentiles

·         Distribution curves and interpretations and

·         Measuring risk and uncertainty for E&P applications

COURSE LOCATIONS