Economic Framework of Exploration-ProductionEAM/EFEP

Who should attend?

  • To allow the participants to get familiar with the use of decision-making tools in the field of E&P projects economics and financial analysis.
Audience :
  • Engineers and commercial staff who need to extend their understanding of the economic and financial aspects of the upstream sector.

Level : Foundation

Course Content

  • UPSTREAM ECONOMIC ENVIRONMENT

      • Economic development of the upstream sector.
      • Various actors in Exploration-Production and their strategies. Oil markets and prices.
      • Current Exploration and Production activities.
      • Levels of investment.
      • Examples of finding, development and production costs.
  • CONTRACTUAL & FISCAL ENVIRONMENT

      • General principles of oil tax systems.
      • Legal framework: concessions agreements, production sharing contracts, service contracts.
      • Impact of various contractual and technical parameters.
      • Sharing of the economic rent between the State and oil companies. Economic flexibility.
      • Legal aspects of joint ventures.
      • Main legal provisions in a Joint Operating Agreement (JOA).
  • ECONOMIC EVALUATION OF E&P PROJECTS

      • Cost of capital and discount rate, value creation.
      • Economic criteria for project evaluation: net present value (NPV), internal rate of return (IRR), payback period, etc.
      • Global profitability analysis, the impact of taxation and inflation on economic indicators.
      • Case studies: development of an oil field (under concession and production sharing agreements).
      • Introduction to risk analysis and risk discount rate: sensitivity analysis, Spider and Tornado diagrams.
      • Probability of success, economic risk analysis in oil exploration.
      • Economic study of an exploration project using Min, Mode and Max scenarios.
      • Case studies: valuation of a decision to acquire information (seismic or drilling) and pricing of an exploration block.
  • UPSTREAM ACCOUNTING & FINANCE

      • Financing of Oil & Gas projects. Basic aspects of accounting and financial analysis.
      • Special mandatory reporting for oil companies.
      • Principles of consolidation.
      • Accounting of exploration expenditures, full cost, successful efforts.
      • Amortization and depreciation methods, special provisions (depletion allowance…).
      • Funds from operations, cash flows, financial equilibrium, working capital.
      • Financial statement, return on capital employed, return on equity, financial leverage.
      • Cost analysis and budgeting.
      • Exploration costs, finding costs, development costs, replacement costs, production costs.
      • Capital budgeting, authorizations for expenditure, planning and scheduling, budgeting exploration activities.
      • Joint venture accounting, accounting procedures, cash calls, joint venture audit.
      • Case study: construction of an E&P company financial statements (simplified).

Learning Objectives

  • Upon completion of the course, participants will be able to:
  • explain the economic, technical and fiscal aspects of E&P activities,
  • evaluate the economic profitability of a simplified E&P project and assess its key sensitivity parameters,
  • analyze the main corporate financial statements (profit/loss and balance sheet) issued by oil companies.

Ways & Means

  • Case studies simulated on computers.
  • Development of an oil field (under concession and production sharing agreements).
  • Acceleration of production project with or without EOR (Enhanced Oil Recovery).
  • Valuation of a decision to acquire information (seismic or drilling).
  • Pricing of an exploration block.
  • Analysis and construction of balance sheets, income statements and key financial statements of an Oil & Gas company.