Course Details
Course Outline
5 days course
Introduction
- Why economic evaluation
- Objective of the course
- Typical oil & gas company objectives
- Typical oil & gas company activities
- Capital expenditure plans
- Basic process of economic evaluation
Inflation
- Inflation defined
- Types of inflation
- Consumer price index
- Risk Factors (Simple Illustration)
Interest
- Simple interest
- Compound interest formula
- Nominal & effective interest rate
The Time Value of Money
- Equivalence
- Interest tables
- Future value of present sum
- Present value of future sum
- Future value of ordinary annuity and annuity due
- Present value of ordinary annuity and annuity due
- Project financing
- Loan amortization schedule
Spreadsheet Applications
- Excel’s financial functions for equivalence
- Excel’s financial functions for loan amortization
Before-Tax (BTAX) Cash-Flow
- Cash-flow (CF) defined
- Gross revenue (GR)
- Basic data requirement
- Forecasting product stream
- Dependence of Capital
Expenditure (CAPEX)
- Economies of scale
- CAPEX during production
- Breakdown of Operating
Expenditure (OPEX)
- Develop rules of thumb for OPEX
- Gas processing flow diagram
- Typical oil production facilities
- Sample before-tax cash-flow
- Schematic of typical cash-flow
Cost Estimation
- Project cost management
- Various types of costs
- Cost estimation tools and techniques
- Level of cost estimates
- Dependence of cost estimates
- Criticality of cost estimates.
After-Tax (ATAX) Cash-Flow
- ATAX cash-flow additional variables
- Depreciation methods
- Sample After-Tax Cash-Flow
Weighted Average Cost of Capital
- Capital Asset Pricing model (CAPM)
- Cost of equity and cost of debt
- Weighted average cost of capital
- Sample WACC calculations
Relationship between cash-flow and WACC
Profitability indicators
- Typical profitability indicators
- Cumulative net cash-flow (discounted & undiscounted)
- Discounted payback period
- Internal rate of return (IRR)
- Net present value (NPV)
- Profitability index (PI)
- Long-run marginal cost (LRMC)
- Maximum sustainable risk
Netback Value & Indexed Pricing
- Netback value (NBV)
- Base year and ROR approach
- LRMC approach
- Indexed netback pricing
Funds Flow and Discounting Frequency
- Funds flow and discounting
- NPV dependence on CF assumptions
- Discounting methods
International Petroleum Agreements
- The need for collaboration
- International agreements
- Parties to agreement
- Typical contract terms
- Contractual arrangements
- Comparison of Fiscal Systems
- Sliding scale tranches
- Concessionary system’s cash-flow
- Joint venture & risk service contracts
Investment Selection Decision-Making
- Investment types
- Types of investment decisions
- Investment selection decision-making
- Revenue producing investments
- Inherent problems with IRR
- Multiple rates of return
- Ranking projects – non-mutually exclusive investments
- Service producing investments (equal lives)
- Service producing investments (unequal lives)
- Lease versus buy decision
- Nominal and real cash-flow
Basic Probability Concepts
- Probability definitions
- Widely used probability distributions
- Discrete probability distributions
- Discrete probability distributions
- Continuous probability distributions
Expected Value Concepts
- Expected value of random variables
- Probability table
- Expected monetary value (EMV)
- Sensitivity analysis
- Correct interpretation of expected value
- Dice rolling experiment Schematic of typical cash-flow
Decision Trees
- The terminology used in decision trees
- Solving a decision tree
Simulation in Decision Analysis
- Applications in simulation
- Simulation in decision-making
- Obtaining random observation from PDF.
Management Presentation
- Assumptions
- Profitability indicators
- Sensitivity diagrams
- Waterfall chart
- Multiple variable cross plot
- Feasible profitability region
