Economics & Risk Analysis of Upstream Projects

EAM/ERA

Who should attend?

  • To provide participants with an in-depth understanding of the tools used in economic analysis and decision-making tools within the upstream industry.
Audience :
  • Engineers, economists and project managers who need to extend their understanding of the specific methods used to evaluate Exploration-Production projects.

Level : Proficiency

Course Content

  • ECONOMIC & CONTRACTUAL FRAMEWORK OF E&P

      • Various phases of Exploration-Production.
      • Technical cost, evolution of the economic environment.
      • Petroleum Exploration and Production contracts.
      • Concessions, production sharing contracts, service contracts.
      • Sharing of the economic rent, economic flexibility in petroleum contracts.
      • Economic clauses.
  • INVESTMENT PROFITABILITY STUDIES

      • 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.
      • Specific method to Exploration and Production: shadow interest.
      • 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.
      • Impact of “ringfencing” and the state participation in the decision-making process.
  • RISK ANALYSIS OF E&P PROJECTS

      • Probability of success, analysis of economic risk in oil exploration.
      • Evaluation of exploration projects and decision trees.
      • Farm in/Farm out.
      • Risked and unrisked economics.
      • Case study: economic study of an oil project including Min, Mode and Max scenarios.
      • Evaluation of development projects.
      • Economic risk associated with a marginal development.
      • Decision trees and subjective probabilities, decision theory.
  • PORTFOLIO MANAGEMENT

      • Components and determinants of asset valuation at various stages of maturity: exploration and appraisal, development, production.
      • Review of methodologies and processes, probabilistic analysis.
      • Asset aggregation and portfolio optimization, tools of choice for comparing expected results and budget efficiencies.
      • Conclusions, what works and what doesn't.
      • Contribution of risk analysis and management to successful exploration.

Learning Objectives

  • Upon completion of the course, participants will be able to:
  • carry out investment profitability studies including all aspects of complex fiscal terms, inflation, and financing,
  • analyze the economic results and carry out sensitivity analysis,
  • incorporate the geological risk and uncertainty in the economic evaluation of Exploration & Production projects,
  • develop advanced computer models for the study of Oil & Gas development projects.

Ways & Means

  • Case studies simulated on computers:
  • Development of an oil field (under concession and production sharing agreements).
  • Impact of “ringfencing” and the state participation in the decision-making process.
  • Valuation of a decision to acquire information (seismic or drilling).
  • Pricing of an exploration bloc.