• GAIN a thorough understanding of oil & gas economic evaluations
• UNDERSTAND and APPLY economic indicators to assess oil & gas industry projects
• QUANTIFY and MANAGE uncertainty and risk
• APPLY Monte Carlo Simulation and other statistical methods in risk analysis to exploration and production investments effectively
• UNDERSTAND, EVALUATE and model both fiscal and production sharing contract (PSC) terms

This course is designed for E&P professionals with a need for detailed understanding of the
upstream petroleum economics, including:

• 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/Manager
• Petroleum Economists
• General Managers
• Finance and Account Executive/Managers

Module 1

Cash flow analysis

Net cash flow

  Definitions , Gross revenue ,  Capital costs , Operating costs , Abandonment costs , Government Take, Net cash flow summary ,Worksheets

Economic life

  Reserves , Abandonment

Net cash flow and profit

  Net cash flow ,Profit

  Income Tax

  Loss carry forward

  Depreciation as costs are incurred , Depreciation matrices , The tax effect of past exploration , Go forward and full cycle economics

Production sharing contracts

  Royalty tax regimes , Production sharing contract regimes , Contractor's gross revenue in one year

  Contractor's revenue over project life,  Contractor's net cash flow , Sliding scale profit sharing , Cost recovery ceilings, Worksheets

Sunk costs

  Inflation

  Illustration,  Depreciation and escalation ,  Nominal net cash flow , Real net cash flow , Calculating real after tax net cash flow, Working in real terms

Depreciation

  Straight line  , Declining balance,  Double declining balance,  Double declining balance - straight line

  Units of production , Sum of the years digits, Worksheets .

Module 2

Economic indicators

Net present value

  Time value of money , Future value , Present value , Discount factors,  NPV when discount rate is zero

  NPV when time is zero, NPV balances money in time,  Present value of a stream of cash flows, Worksheets

Features of NPV   

Nominal and real NPVs

  Discounting and deflation , Defining nominal and real NPVs,  Calculating nominal and real NPVs

  Presenting nominal and real NPVs , Nominal and real NPVs can be different

  Worksheets

Internal rate of return

NPVs and simple project cash flows , Definition of internal rate of return , Multiple internal rates of return,  Example of multiple IRRs , The meaning of NPV in the example, Worksheets

Comparing investments, Example comparison

  Nominal and real IRRs

  Definitions , Example of nominal and real IRR ,Worksheets

Capital productivity index

  Definition , CPI example , Alternative definition,  Investment multiple example ,  Disadvantages of CPI The use of CPI in capital rationing , Lumpy investments,  Worksheets

Payback

  Undiscounted payback ,  Discounted or compounded payback , Disadvantages of payback.

Discounting methods

  Mid year discounting ,  Comparing end and mid year discounting , Discounting to different dates

  Using spreadsheet functions ,Worksheets.

Comparison of economic indicators

Case examples, Field development, Introduction, Example oil field development

Before take net cash flow , Government take , Net cash flow after take

Module 3

Risk analysis

Introduction

- Uncertainty in oil and gas projects,  Risk free return,  Company risk premium , Risk of proposed project

- Treatment of risks in project appraisal, Treatment of company risks , Treatment of risk for proposed project

Sensitivity analysis

Discrete probability distributions

  The mean of a probability distribution , Standard deviation , P90, P50, P10

Exploration drilling decisions

  Decision alternative , Outcome or event , Conditional value , Expected value of outcome , Expected value of decision , Coin toss example, Exploration drilling decision,  Expected value balance risk and reward,  Meaning of expected value , Expected value is not most likely value, Expected value is a methodology , Probabilities must add up to one , EVs can be arithmetically manipulated , EV implies impartially to money Contents  , Expected value lines , Using EV in farmout decisions.

Defining success

Many outcomes

Decision tree analysis

 Solution, What the decision tree has told us , Sensitivity analysis , Negative values in decision trees

Value of information , History of basin Analysis, Histogram probability distributions ,  Mean and standard deviation , P(90), P50, P10

Continuous probability distributions, Triangular distributions , Normal distributions

Log normal distributions , Reserves distributions, Monte Carlo Simulation , Deterministic oil-in-place estimate , Probabilistic oil-in-place estimate, The mechanics of Monte Carlo, The method of sampling Practical aspects of Monte Carlo analysis , Portfolio analysis , Investment portfolios, Measures of risk and reward, Risk analysis continued , Portfolio analysis continued , Expected value , Variance , Standard deviation , Covariance, Correlation coefficient, Perfect positive correlation, Perfect negative correlation No correlation , Diversification , Adding reserves, Vertical integration , Efficient portfolios, Risk and discounting, Estimating the company risk premium The effect of debt , Problems with Beta methodology Project risk , Risk aversion

Module 4

Fiscal analysis

Fiscal regimes

  Introduction , Aims of petroleum fiscal regimes , State participation,  State royalties , Cost recovery provisions , Profit sharing provisions , Domestic obligations , Surplus profits taxes , Income taxes , Special levies and taxes , Bonuses Contents. 

Types of fiscal regime

  Royalty - tax regimes , Production sharing contract regimes , Structure of royalty tax regimes

  Structure of PSCs

The mathematics of tax and PSC systems

  Simple tax and PSC cash flows, State Take and Government Take , Defining State and Government Take , State / Government Take is a difference, Severity of fiscal regimes , Economic efficiency of fiscal regimes ,  Example of fiscal efficiency , The effect of royalties , Comparison of royalty and ROR tax , The effect of cost recovery ceilings , The effect of production triggers , The effect of depreciation , Other fiscal components , Stability of fiscal regimes , Progressive and regressive regimes, Incremental effects of fiscal regimes , Incremental economics and ring fences ,Incremental economics and exploration .

RECTUS attendance certificate will be issued to all attendees completing minimum of 80% of the total course duration