In this Petroleum Economics, Risk and Fiscal Analysis course, Guy Allinson will give participants the ability to:
- Understand and construct petroleum industry cash flow projections.
- Calculate, understand and know how to apply economic indicators.
- Understand and apply risk analysis to exploration & production investments.
- Evaluate and model fiscal/PSC terms of countries worldwide.
Here are what the participants will learn.
CASH FLOW ANALYSIS
Net Cash Flow
Discussion of the main components and relative importance of components of cash flow for an oil and gas investment (production profiles, oil, and gas price forecasts, revenue, operating costs, capital costs, abandonment costs, and fiscal costs). Discussion of typical net cash flow projections for petroleum projects.
Economic Life and Reserves
How net cash flow projections are critical in determining economic life and reserves. Industry approaches to reserves estimates incorporating economics.
The 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 profits.
Cash Flow and Tax
How tax is incorporated into cash flow projections. The basic rules for calculating tax worldwide. Loss carry forward and the effect of different petroleum tax regimes.
Cash Flow and PSCs
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.
The treatment and mistreatment of sunk costs in cash flow analyses and petroleum property acquisitions.
Incorporating Inflation into Cash Flow Projections
How to inflate the components of cash flows. The conventions and the jargon. Worked examples of the effects of inflation.
Real and Nominal Cash Flows
The distinction between real and nominal cash flows. Fiscal drag and the problems associated with taking short cuts to derive real cash flows. Common misunderstandings in the use of real cash flows.
Depreciation, amortization, and depletion. The methods employed in oil and gas taxation, fiscal terms and accounts
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.
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.
Internal Rate of Return (IRR)
The definition and application of IRR. Calculating the IRR.
Problems with IRR
Multiple IRRs – when, how often and how they arise. How the NPV and IRR measures can give conflicting results and how to resolve this. The effect of project delays and the use of IRR
Calculation and use of payback and discounted payback indicators. The use of discounted payback in petroleum fiscal regimes. Problems with payback.
Capital Productivity Index (CPI)
Calculation and use of CPI. The use of CPI in oil companies and petroleum fiscal regimes. Capital rationing. Problems with CPI.
Comparison of Economic Indicators
How the different economic indicators compare in terms of their usefulness in making oil and gas industry investment decisions.
EXAMPLE ECONOMIC EVALUATIONS
Accelerated production example. The effect of fiscal terms on incremental investment decisions.
Analyzing the sensitivity of investment decisions to variations in input parameters. Interpreting sensitivity diagrams. Problems with sensitivity analysis.
Defining and using probability distributions. Means, standard deviations, levels of confidence. Industry-standard reserves definitions and classifications. Using probability in oil and gas industry practice – the pitfalls and requirements.
Monte Carlo Simulation
The mechanics of Monte Carlo simulation. The pitfalls of Monte Carlo simulation and how to avoid them. Reserves estimation using Monte Carlo simulation. Investment decisions using Monte Carlo simulation.
The definition, meaning and examples of Expected Value (EV) in oil and gas drilling decisions. EV versus probability of success lines. Using EV to compare drilling and farmout decisions. Common problems with using EV and choosing probabilities of success. Valuing properties using EV. The effect of petroleum fiscal terms.
ECONOMICS OF EXAMPLE FISCAL REGIME
Detailed analysis of one or more petroleum fiscal regimes in SE Asia. How to judge the severity, efficiency and economic effects of individual fiscal regimes.
Important note on the use of PCs.
All course participants must bring their own notebook computers to the class. In each component of the course, participants will work using computers. A basic familiarity with spreadsheets would be an advantage but is not essential.
ABOUT THE COURSE LEADER – Guy Allinson
Guy Allinson is an upstream oil and gas industry consultant and a lecturer at the School of Petroleum Engineering, University of New South Wales (“UNSW”).
Guy has held a range of petroleum economics and commercial positions in the oil and gas industry in Europe and the Asia / Pacific regions. He has advised companies and governments in the Asia / Pacific region on petroleum PSC and fiscal terms. He has valued many petroleum properties and companies for acquisition and sale, prepared economics research reports on the oil and gas industry and has provided commercial support for oil field operations and investments worldwide.
Guy has presented courses in petroleum economic analysis since the early 1990s and has presented these courses over 230 times to oil industry professionals in many countries including USA, UK, Denmark, Switzerland, Australia, New Zealand, Indonesia, India, Iran, Malaysia, Thailand, Vietnam, Brunei, Egypt, Libya, and South Africa.
Delegates to previous petroleum economics courses presented by Guy Allinson have made the comments set out below.
“This was a fantastic course. I was worried that the content would be dry and boring but it was the opposite, very interesting. The notes are great and will make a very good future reference as will the exercise spreadsheets. Thanks very much.”
“This is an excellent short course for anyone interested in understanding the basics of petroleum economics. The presenter is highly knowledgeable of the subject and excellent in delivering the content.”
“I was very pleased with the content, delivery, pace of delivery and accessibility and style of presentation. Simple to understand, supported by working examples and solutions to work at our own pace. An invaluable course.”
Course date: August 17-19, 2020
If you or your people want to attend this course, please register HERE.