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The petroleum industry is one of the most influential players in the world economy. Given the
large scale of capital investment required for most petroleum projects, it is important that
investment decisions are based on a thorough analysis of variables and uncertainties.
This course provides a thorough, practical introduction to the techniques used within the
petroleum industry to value projects, assets and companies.
The material covered commences with general discounted cash flow principles and progresses
through to the more sophisticated simulation and real options approaches. It also addresses issues
specific to the oil and gas industry such as fiscal systems, risk analysis and competitive bidding,
providing you with the knowledge to answer questions such as "How will it work?", "What is the
cost?" and "What is the return/profit?"
The petroleum industry is one of the most influential players in the world economy. Given the
large scale of capital investment required for most petroleum projects, it is important that
investment decisions are based on a thorough analysis of variables and uncertainties.
This course provides a thorough, practical introduction to the techniques used within the
petroleum industry to value projects, assets and companies.
The material covered commences with general discounted cash flow principles and progresses
through to the more sophisticated simulation and real options approaches. It also addresses issues
specific to the oil and gas industry such as fiscal systems, risk analysis and competitive bidding,
providing you with the knowledge to answer questions such as "How will it work?", "What is the
cost?" and "What is the return/profit?"
During the course you will study:
Cash Flow Components and Economic Indicators
Operating expenditures (opex) and their fixed, variable and marginal components
Economic indicators and yardsticks used to rank asset values (NPV, IRR, MIRR etc.)
Producer, government and joint venture partner takes: shares of revenues and costs
Gross, semi-variable, and net refinery margins and net cash values
Significance of non-fuel and convenience store revenues in retail fuel site economics
Quadruple bottom line approach: integrating financial, societal, safety and environmental
benefits
Effective valuation of debt, price hedges and tax synergies in acquisitions and
divestments
A practical Energy Training course enabling delegates from all technical and commercial
disciplines to understand the theories and methods used to value oil and gas prospects. The one
week training will reveal the fundamental aspects of upstream petroleum economics and risk
analysis.
Benefits of Attending
Programme outline
Future issues
Given the volatility in oil prices today, the economic evaluation of an upstream oil and gas
investment is essential. 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.
The course will cover cash flow analysis, deriving and understanding economic indicators and
detailed probability and fiscal analysis. These are vital components of the evaluation of
investments in todays international upstream oil and gas industry.
This 3 day course is a practical petroleum economics course that will provide participants with a
complete understanding of the use of the techniques of economic analysis and risk analysis as
currently practiced in the oil and gas industry. Participants will receive a thorough understanding
of the context of economic analysis as well as practical instruction and an appreciation of the
analytical techniques used. Along the course, participants will be engaged in exercises and
examples to reinforce their understanding of the concepts learned.
Course Objectives:
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
UNDERSTAND and APPLY economic indicators to assess oil & gas industry projects
QUANTIFY and MANAGE uncertainty and risk faced in upstream business decisions
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
terms worldwide
Geoscientists
Reservoir Engineers
Production Engineers
Petroleum Engineers
Commercial Analysts/Executive/Managers
Business Planners/Analysts/Executives/Managers
Project Executives/Manager
Petroleum Economists
General Managers
Course Outlines
DAY 1
1. INTRODUCTION
Aims and scope
Contents
Cash
Economic
Economic
Risk
Fiscal
system
Worldwide fiscal terms
flow
Evaluation
and
PSC
analysis
indicators
Examples
analysis
analysis
Economic
Life
and
Reserves
How net cash flow projections are critical in determining economic life and reserves. The effects
of oil price, costs and fiscal terms on reserves estimates.
[EXERCISE]: Delegates exercise in determining economic life and estimating reserves.
Distinction
between
Cash
Flow
and
Profit
How cash flow is distinguished from profit. The role of depreciation. When we use cash flow
and when we use profit.
Cash
Flow
and
Tax
How tax is incorporated into cash flow projections. The basic rules for calculating tax
worldwide. The effect of tax on field development decisions. Loss carry forward and the effect of
different petroleum tax regimes.
[EXERCISE]: Delegates exercises in calculating tax and demonstrating the effects of
different tax regimes.
Cash Flow and Production Sharing Contracts (PSC)
The basic economic distinction between tax regimes and production sharing contract regimes.
How to make cash flow projections for production sharing systems worldwide. Cost recovery
and profit sharing arrangements.
[EXERCISE]: Delegates exercises in cash flow analysis with different PSC terms.
Sunk
Costs
The treatment and mistreatment of sunk costs in cash flow analyses and petroleum property
acquisitions. Discussions of the effects of sunk costs.
Incorporating
Inflflation
into
Cash
Flow
How to inflate the components of cash flows. The conventions and the jargon.
Projections.
the
main
depreciation
methods
used
in
fiscal
terms
worldwide.
DAY 2
3.
ECONOMIC
INDICATORS
Introduction
The need to measure net cash flow projections with single indicators. The indicators used in the
oil and gas industry.
The importance of time.
Net
Present
Value
(NPV)
The time value of money. Compounding and discounting. Using a discount factor table and
measuring the effect of time and discount rate. Discounting a cash flow projection and
calculating NPV. Understanding the meaning, uses and features of NPV. Valuing petroleum
properties using NPV. Preliminary discussion of choosing discount rates
[EXERCISE]: Delegates exercises in calculating NPV and demonstrating its features.
Real
and
Nominal
NPVs
The distinction between deflating and discounting and between real and nominal discount rates
and NPVs. Dealing with the pitfalls of using real NPVs.
[EXERCISE]: Delegates exercises in calculating real and nominal NPVs.
Internal
Rate
of
The definition and application of IRR. Calculating the IRR.
Return
(IRR)
farmout decisions. The effects if fiscal terms and common problems with using EV. Choosing
probabilities of success. Valuing properties using EV.
[EXERCISE]: Delegates exercises in the economics of drilling, farming out acreage and
the effects of fiscal terms.
6. PRODUCTION SHARING CONTRACTS, FISCAL SYSTEMS AND TERMS IN THE
ASIA PACIFIC REGION
Analysis of example PSCs and fiscal terms in the Asia-Pacific region. Evaluating the severity of
fiscal terms. How the fiscal components work. How certain fiscal terms can distort oil and gas
project investment decisions. How to avoid potential investment distortion in the design or
negotiation of fiscal terms. Examples for Indonesia, Malaysia, Thailand, Vietnam and Australia.
[EXERCISE]: Delegates exercises in showing the structure and dynamics of example fiscal
regimes in SE Asia.
7. WORLDWIDE FISCAL TERMS
The economic comparison of fiscal terms across the world - severity and efficiency.
8. SUMMARY AND CONCLUSION
The above is a guide to the topics covered during the course and the approximate timing of the
topic. The presenter reserves the right to make modifications to these depending on the
delegates background and experience and the progress of the course.
Course Overview
Advanced upstream petroleum economics describes the philosophy, process, and methods
underlying upstream economic evaluation of capital investments under different categories of
risk and uncertainty and risk attitudes of decision makers. The short course facilitates a thorough
understanding of all the necessary concepts of capital investment evaluation, capital budgeting,
and investment decision criteria available and techniques for making rational economic decisions
in the oil and gas industry under risk and uncertainty.
Petroleum Economists
Petroleum Engineers
Regulator
Legislative Staff
Independent Operators
Review economic decision tools to evaluate projects, understand what investment criteria really
mean, and know which criteria to use to make rational economic decisions on best investment
options; practice building spreadsheet cash flow economic models to characterize the economic
factors inherent in different petroleum fiscal arrangements
Introduction/course
expectations
Future
global
E&P
outlook
Petroleum economic evaluation fundamentals NCF concepts / time value of money / DCF
models
Petroleum economic evaluation fundamentals fiscal arrangements overview/ review economic
profitability
measures
Review of expectations and feed back
Syndicate Exercise -- Build and analyze economic evaluation spreadsheet models fifiscal
systems
Day 2 - Understanding the Basic Language of Risk and Uncertainty
Learn to calculate and use descriptive statistics in business decisions, know common probability
distributions and use them to express judgments about risks and uncertainties; use built-in
capabilities of a spreadsheet application to generate descriptive statistics and solve various
problems associated with probability calculations and probability distributions
Review
Basic principles of probability and statisticsmeasures of central tendency, measures of
variability
Basic principles of probability and statisticstypes of distribution curves and interpretations
and
applications
Review of expectations and feed back
Syndicate Exercise -- Descriptive statistics and probability analysis using Excel spreadsheet
applications
Day 3 - Risk and Uncertainty Analysis Methods and Applications
Review approaches to risk and uncertainty analysis and the advantages and disadvantages of
each method; apply these methods to manage risk and uncertainty; apply add-in software
package to quantify probabilistic treatment of uncertainty in decision making in terms of
expected value and to solve decision analysis problems
Review
Expected value approach and decision tree analysis definitions, calculation, meaning &
interpretation
Expected utility theoryincorporating risk attitude, utility function, decision criteria and
application
for
exploration
economic
decisions
Review of expectations and feed back
Syndicate Exercise -- Spreadsheet applications using excel add-in to solve decision analysis
problem examples
Day 4 - Monte Carlo Modeling Process and Simulation Analysis
Learn simulation modeling for Monte Carlo applications using spreadsheets. Understand how to
use commercial spreadsheet simulation add-ins to achieve simulation modeling analysis of
uncertainties and risks
Review
Risk and uncertainty analysis using simulationoverview, process, modeling & applications
Monte Carlo simulation spreadsheet modeling tools, analysis and interpretations of simulation
results
Review of expectations and feed back
Syndicate Exercise -- Spreadsheet applications using excel add-in software packages (Group
Practicum)
Day 5 - Monte Carlo Simulation Applications in the Oil and Gas Industry
Develop skill to understand the process of using probabilistic spreadsheet models for Monte
Carlo simulation for risk and uncertainty analysis. Apply spreadsheet simulation modeling tools
to characterize business decision parameters subject to risk exposure.
Review
Spreadsheet probabilistic modeling and simulation analysis of royalty and tax contract examples
Spreadsheet probabilistic modeling and simulation analysis of contractual system examples.
Review of expectations and feed back
Syndicate Exercise -- Risk and uncertainty analysis in the petroleum industry using excel add-in
(Group Practicum)
This is a practical course that will enable delegates from all technical and commercial disciplines
to become familiar with the theories and methods used to value oil and gas prospects, discoveries
and fields in the international petroleum industry
Overview:
The course covers the fundamental aspects of upstream petroleum economics and risk analysis
through a variety of lectures and workshop exercises. The practical application of theory via
computer-based workshops allow participants to construct economic models, incorporate
relevant cash-flow data and draw conclusions to aid decision-making.
Content:
The course will be valuable for all those in E&P who are interested and involved in strategic
decision making. These can be general- and functional managers and planning managers, who
need a good grasp of modern concepts of strategic management in terms of:
Overview:
Purpose of strategic management is to ensure that an organisation knows where it is going to, and
how it is going to get there. This must be based on a realistic understanding of the business
environment and how the organisation must change to be in shape for tomorrow.
Strategic management requires us to make sense of complex and dynamic situations in the
Upstream part of the Oil and Gas business where the emphasis lies in getting access to increasing
volumes of HC's on a regional or global scale. It requires an organisation which has the desire
and the capability to adept and therefore to change.
Content:
Introduction to strategy
Strategic analysis
Visioning
Strategic Decisions
Performance measurement
Balanced scorecard
During the course the participants will be focusing on topics such as; Strategic Analysis (i.e. to
identify key questions to evaluate and understand the industry and market around you), Visioning
(i.e. to understand the capabilities of your enterprise, creating a vision), Decisions, Creative
thinking, Managing Value, Performance measurement (i.e. value drivers, key success factors and
performance indicators) and Balanced Scorecards. Appropriate case studies and exercises will
clarify the theory.
The course is designed to be at an introductory level for those new to the subject of petroleum
economics. It is suitable for personnel from all technical and commercial disciplines.
Overview:
This two-day course provides an introduction to the theories and practices of upstream petroleum
economics. Delegates will learn how to value oil and gas fields on a standalone basis using the
discounted cash flow methodology. Additionally delegates will see some more advanced
economic and risk analysis techniques in operation. International petroleum fiscal terms are
discussed to enable the delegates to apply the valuation techniques globally.
Content:
This course will cover the fundamentals of project management within the context of the
Petroleum Industry through a combination of presentations and software-based project
management exercises.
The course will be divided into two main parts:
Project definition
Task Descriptions: What is the task and why are we doing it?
The Timeline
Once the project workflow model has been defined, durations can be
assigned and the timing of the project can be modelled.
Resource Allocation
Once the timeframe is set, the resources can be allocated. This is typically a
balancing act with only finite resources available and deadlines pressing.
There are four main elements to the project implementation cycle. These will be covered in turn,
as outlined below.
Pre Launch
Several issue may need to be covered pre-launch, for example, are their any
training needs for staff to prepare them for the upcoming projects? Other
possibilities will be discussed.
Project Launch
This section will look at the key issues that should accompany the project
launch, for example:
Team introductions
Data requests
Project Management
The project management process entails continual updates to the project
model. Various real life scenarios will be considered and various methods for
managing changes considered.
Project Closure
The final delivery of the project objectives should be followed by a project
evaluation session, which ensures that lessons are learned, both positive and
negative, and captured for future projects.
Exercises and software solutions
The entire process of project definition through to project closure will be followed using a
software-based project example, undertaken in teams. This will provide the maximum
opportunity to experiment with scenarios and evaluate sensitivities to different project
parameters.
The course is designed for those working in the upstream industry who are not familiar with
taxation and royalty systems and require either a working or practical knowledge of the financial
mechanics and economic aspects of the contracts. Whilst it is suitable for delegates from all
technical and commercial disciplines, some background knowledge in upstream economics
would be an advantage.
Overview:
How taxation and royalty systems operate and their differences to production
sharing contracts
The range and diversity of fiscal terms applied globally in taxation and royalty
systems
How to model and calculate the participant cash flows and economic metrics
for a taxation and royalty system
Content:
Royalties
Capital Allowances
Gain new insights and confidence from your use of uncertainty data
The course is unique in its field: delegates will gain tangible skills to take back to their
workplaces; economic model building integrated with practical decision and uncertainty analysis
. This will be achieved over the five days with a mixture of theory, question and answer, case
studies and hand-on practical workshop sessions.At the end of the course, delegates will be
provided with fully functioning economic models which, as well as being useful valuation tools,
will act as a memory jogger in future economic analyses or commercial negotiations in which the
delegates are involved. In addition, delegates will be given 30-day evaluation licenses to TreeTop
and DTrio software so they can continue to work their problems and prove utility of these
concepts within their workplace.
The course is suitable for delegates of all technical and commercial disciplines from oil and gas
companies, governments, banks, legal and accounting organisations.
Learning Outcomes:
By the end of the course students will have a thorough understanding of:
The main approaches to modelling and the differences between 1D, 2D and
3D models
Course Content:
Modelling requirements
Conceptual model
Calibration data
Heat flow
Fluid flow
1D modelling
o
Model building
Burial history
Temperature calibration
Sensitivity analysis
2D & 3D modelling
o
Model building
Model calibration
Hydrocarbon migration
2D modelling
o
ENERGY TRADE
Five core modules (30 hours each)
before dealing with the detailed business and finance issues which are covered in the other three
energy-specific modules.
Topics covered include: hydrocarbon supply and demand; microeconomic organisation of oil,
natural gas, coal and electricity markets; renewable energy; climate change and other energy
policy issues.
Managerial Accounting
Introduces the principles of accounting and finance in business and the main techniques in
management accounting, planning and control. Covers the interpretation and use of annual
reports and accounts, financial and ratio analysis, and their use for managerial decision-making,
and budgetary control systems.
Principles of Finance
As a first course in finance, addresses the key issues involved in valuing assets and liabilities on
the basis of their future earning power. Students are introduced to the problems involved in
specifying risky future earnings and the appropriate rate at which to capitalise them. Payoff
asymmetry is examined, and options are valued with the help of both the binomial and BlackScholes models.
Quantitative Methods
Following the induction course, it covers descriptive and inferential statistics, as well as
regression analysis techniques. Develops skills that are essential for other modules and the
dissertation and is designed to ensure relevance to everyday business problems.
Oil & Energy Transportation & Logistics (For ETF students only)
This module will equip students with the tools necessary to think skilfully and maturely, but also
independently on matters relating to the oil and energy transportation business and industry.
Students will develop an understanding of the economic structure of the tanker shipping industry,
LNG and LPG shipping, and pipeline and land transportation networks. Students will also
develop an understanding of the industry's cost structure and how prices are set and revenue is
earned by tanker, LNG, LPG and pipeline companies.
*Sponsored by Thanassis and Marina Martinos
Corporate Finance
Builds on the subject matter learned in Principles of Finance in Part one and focuses on the
decisions undertaken by the modern industrial corporation, with respect to such areas as
expansion, restructuring, capital formation and acquisitions. Applying theoretical concepts to
case studies, the student will extend his or her ability to formalise, structure and analyse capital
expenditures and investments, including how they are financed and how the risks thereby arising
are managed. Topics include mergers and acquisitions; restructuring; investment banking; cost of
capital; and the use of futures and options to manage risk.
Financial Markets
Covers the global economic and financial environment within which business corporations
operate. Globalisation and integration of markets for debt, equity and risk management have
created new opportunities in the capital formation process, but pose great difficulties in
navigating successfully. Where should capital be raised? How does one manage the risks from
certain currencies and certain sovereign regions? In the context of the globalisation of capital
markets, considers the structure, functions and performance of financial markets on an
international basis and how they facilitate real economic activity; and the role of institutions
operating as global intermediaries within these same markets.
as storability, perishability and seasonalities; pricing mechanisms and methods of adjustment; the
role of key producers and key markets in shaping market conditions.
Oil & Energy Trading and Economics (for ETF students only)
This module prepares you for a career in the oil and energy industries. It consists of a
combination of the following key aspects of the energy industry. Petroleum - Exploration,
production history and cost; Basic hydrocarbon chemistry; Refining economics; Effect of
product quality and the environmental issues. Energy - Geopolitcal role of oil, gas and coal;
Supply and trading patterns and economics; Demand structure and inter relationship of the
energy markets; The role of finance, Price risk management and controls.You will progress from
an understanding of the exploration and development of oilfields to the economic exploitation of
the energy markets through refining, gas distribution and power generation, to marketing and
trading and the role of finance throughout the supply chain. The integration with the other
aspects of the course will lead to an understanding of short term trading, project financing,
shipping economics and the use of systems and instruments to risk manage the process both in
the short and long term context
regulation, liberalisation and climate change issues; market structures for electricity; pricing,
risks and their management.
Five electives (18 hours each)
OR
One elective and a Business Research Project
Electives
Air Transport
Chartering
E-commerce and IT
Empirical Finance
Futures
International Banking
Marine Insurance
Options
Project Finance
Risk Management
Shipping Innovation*
Shipping Law
This compulsory module trains students to undertake independent research either in the context
of a single organisation or by using third-party sources. It provides the necessary tools and skills
to initiate, research and write up a business project and includes training in research
methodology, availability of data sources, project writing, time-management and presentation
skills. These skills will be invaluable to students in their future career whether or not they choose
to complete a project.
these sectors is at different levels of commoditization and the types of trading that occur in each
area. Which players dominate which sector and why? Which sector has the most profitable
trading opportunities? How does the international market play into the three US sectors? Why
should you select one trading sector over the other?
Economics of moving oil to the manufacturing sector from all major methods: truck, rail,
pipeline and ever-increasing waterborne
Netback analysis
Economics of moving refined products to spot markets by various methods: truck, rail,
pipeline, barges and ocean-going vessels
Understand market and cost factors that impact oil price throughout every step of its life
cycle
Learn to spot opportunities for profit that exist throughout each phase of oil production
and delivery
Go back to work with the competence and confidence to operate knowing you have the
most up-to-date knowledge available in the field
Special techniques to recovery more oil, i.e., waterflooding, miscible gas injection,
polymer-surfactant injection and thermal processes
The theory of peak oil production why prices are going upward
Fundamentals of Petroleum
Refinery basics
Key players
Terminology
Pipeline transport and U.S. spot markets in the intermediary markets and the critical role
these downstream components play in the infrastructure
Retail landscape. Examine the players, trends, brand value, margins, and pricing
components that make up a street price in any given market