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Economic Framework of Exploration-Production

Economic Framework of Exploration-Production

5 days
EAM/EFEP
Sessions
This course is not scheduled.
Who should attend?

Audience

    • Engineers and commercial staff who need to extend their understanding of the economic and financial aspects of the upstream sector.

Level

  • Foundation
  • 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.
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.
Course Content

UPSTREAM ECONOMIC ENVIRONMENT

0.5 day

  • 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

0.5 day

  • 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

2 days

  • 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

2 days

  • 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).
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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.