Upstream Petroleum Economics, Risk, and Fiscal Analysis
Guy Allinson
Given the volatility in oil prices today, the economic evaluation of an upstream oil and gas investment is essential. Business decisions involving asset acquisitions, lease-buy assessments, exploration drilling options, oil and gas field development, equipment purchases, and fiscal negotiations all require detailed economic analysis.
The course will cover cash flow analysis, deriving and understanding economic indicators and detailed probability and fiscal analysis. These are vital components of the evaluation of investments in today’s international upstream oil and gas industry.
This 3 day course is a practical petroleum economics course that will provide participants with a complete understanding of the use of the techniques of economic analysis and risk analysis as currently practiced in the oil and gas industry. Participants will receive a thorough understanding of the context of economic analysis as well as practical instruction and an appreciation of the analytical techniques used. Along the course, participants will be engaged in exercises and examples to reinforce their understanding of the concepts learned.
DAY 1
1. INTRODUCTION
Aims and scope
Contents
• Cash flow analysis
• Economic indicators
• Economic Evaluation Examples
• Risk analysis
• Fiscal system and PSC analysis
• Worldwide fiscal terms
• Cash flow analysis
• Economic indicators
• Economic Evaluation Examples
• Risk analysis
• Fiscal system and PSC analysis
• Worldwide fiscal terms
2. CASH FLOW ANALYSIS
Net Cash Flow
Discussion of the main components and relative importance of components of cash flow for oil and gas investments (production, price, revenue, operating costs, capital costs, abandonment costs, and fiscal costs). Oil and gas price forecasts and the treatment of price forecasts in net cash flow analysis.
Discussion of the main components and relative importance of components of cash flow for oil and gas investments (production, price, revenue, operating costs, capital costs, abandonment costs, and fiscal costs). Oil and gas price forecasts and the treatment of price forecasts in net cash flow analysis.
[EXERCISE]: Delegates’ exercise in preparing a net cash flow projection.
Economic Life and Reserves
How net cash flow projections are critical in determining economic life and reserves. The effects of oil price, costs, and fiscal terms on reserves estimates.
How net cash flow projections are critical in determining economic life and reserves. The effects of oil price, costs, and fiscal terms on reserves estimates.
[EXERCISE]: Delegates’ exercise in determining economic life and estimating reserves.
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 it to profit.
How cash flow is distinguished from profit. The role of depreciation. When we use cash flow and when we use it to profit.
Cash Flow and Tax
How tax is incorporated into cash flow projections. The basic rules for calculating tax worldwide. The effect of tax on field development decisions. Loss carries forward and the effect of different petroleum tax regimes.
How tax is incorporated into cash flow projections. The basic rules for calculating tax worldwide. The effect of tax on field development decisions. Loss carries forward and the effect of different petroleum tax regimes.
[EXERCISE]: Delegates’ exercises in calculating tax and demonstrating the effects of different tax regimes.
Cash Flow and Production Sharing Contracts (PSC)
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.
[EXERCISE]: Delegates’ exercises in cash flow analysis with different PSC terms.
Sunk Costs
The treatment and mistreatment of sunk costs in cash flow analyses and petroleum property acquisitions. Discussions of the effects of sunk costs.
The treatment and mistreatment of sunk costs in cash flow analyses and petroleum property acquisitions. Discussions of the effects of sunk costs.
Incorporating Inflflation into Cash Flow Projections.
How to inflate the components of cash flows. The conventions and the jargon.
How to inflate the components of cash flows. The conventions and the jargon.
[EXERCISE]: Delegates’ exercise in generating cash flow incorporating inflation.
Real and Nominal Cash Flows
The distinction between real and nominal cash flows. Fiscal drag and the problems associated with taking shortcuts to derive real cash flows. Common misunderstandings in the use of real cash flows.
The distinction between real and nominal cash flows. Fiscal drag and the problems associated with taking shortcuts to derive real cash flows. Common misunderstandings in the use of real cash flows.
[EXERCISE]: Delegates’ exercise in preparing real and nominal net cash flows.
Depreciation
Coverage of the main depreciation methods used in fiscal terms worldwide.
Coverage of the main depreciation methods used in fiscal terms worldwide.
[EXERCISE]: Delegates’ exercise in preparing depreciation schedules
DAY 2
3. ECONOMIC INDICATORS
Introduction
The need to measure net cash flow projections with single indicators. The indicators used in the oil and gas industry.
Introduction
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. Preliminary discussion of choosing discount rates
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. Preliminary discussion of choosing discount rates
[EXERCISE]: Delegates’ exercises in calculating NPV and demonstrating its features.
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.
The distinction between deflating and discounting and between real and nominal discount rates and NPVs. Dealing with the pitfalls of using real NPVs.
[EXERCISE]: Delegates’ exercises in calculating real and nominal NPVs.
Internal Rate of Return (IRR)
The definition and application of IRR. Calculating the IRR.
The definition and application of IRR. Calculating the IRR.
[EXERCISE]: Delegates’ exercises in calculating 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.
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.
[EXERCISE]: Delegates’ exercises in calculating multiple IRRs and seeing how they arise and how to interpret them.
Payback
Calculation and use of payback and discounted payback indicators. The use of discounted payback in petroleum fiscal regimes. Problems with payback. How compound payback is used in some fiscal regimes
[EXERCISE]: Delegates’ exercises in calculating simple and compound payback for tax.
Calculation and use of payback and discounted payback indicators. The use of discounted payback in petroleum fiscal regimes. Problems with payback. How compound payback is used in some fiscal regimes
[EXERCISE]: Delegates’ exercises in calculating simple and compound payback for tax.
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.
Calculation and use of CPI. The use of CPI in oil companies and petroleum fiscal regimes. Capital rationing. Problems with CPI.
[EXERCISE]: Delegates exercises in calculating CPIs and their application in some PSCs
4. EXAMPLE ECONOMIC EVALUATIONS
Accelerated production example.
[EXERCISE]: Delegates’ exercise in incremental economics and the effects of fiscal terms.
DAY 3
5. RISK ANALYSIS
Sensitivity Analysis
Analyzing the sensitivity of investment decisions to variations in input parameters. Interpreting sensitivity diagrams. The pitfalls in using sensitivity analyses for oil industry investment decisions.
Analyzing the sensitivity of investment decisions to variations in input parameters. Interpreting sensitivity diagrams. The pitfalls in using sensitivity analyses for oil industry investment decisions.
[EXERCISE]: Delegates’ exercise in preparing sensitivity analyses and using them for investment decisions.
Probability Analysis
Defining and using probability distributions. Means, standard deviations, levels of confidence. Industry-standard reserves definitions and classifications.
Defining and using probability distributions. Means, standard deviations, levels of confidence. Industry-standard reserves definitions and classifications.
[EXERCISE]: Delegates’ exercise in preparing probability analysis.
Using Probability in the oil and gas industry
Making estimates under uncertainty in the petroleum industry. Combining uncertain variables and issues with adding reserves, adding costs, and analyzing economics.
Making estimates under uncertainty in the petroleum industry. Combining uncertain variables and issues with adding reserves, adding costs, and analyzing economics.
[EXERCISE]: Delegates’ exercises in combining uncertain oil industry variables.
Monte Carlo Simulation
The mechanics of Monte Carlo simulation. Choosing probability distributions. The pitfalls of Monte Carlo simulation and how to avoid them. Reserves estimation using Monte Carlo simulation. Investment decisions using Monte Carlo simulation.
The mechanics of Monte Carlo simulation. Choosing probability distributions. The pitfalls of Monte Carlo simulation and how to avoid them. Reserves estimation using Monte Carlo simulation. Investment decisions using Monte Carlo simulation.
[EXERCISE]: Delegates’ exercises in deriving and using probability distributions of oil in place, NPV, and reserves using spreadsheet Monte Carlo simulation.
Exploration decisions
The definition, meaning, and examples of economics for oil and gas exploration drilling decisions. Expected value (EV) versus probability of success lines. Using EV to compare drilling and farm-out decisions. The effects of fiscal terms and common problems with using EVs. Choosing probabilities of success. Valuing properties using EV.
The definition, meaning, and examples of economics for oil and gas exploration drilling decisions. Expected value (EV) versus probability of success lines. Using EV to compare drilling and farm-out decisions. The effects of fiscal terms and common problems with using EVs. Choosing probabilities of success. Valuing properties using EV.
[EXERCISE]: Delegates’ exercises in the economics of drilling, farming out acreage, and the effects of fiscal terms.
6. PRODUCTION SHARING CONTRACTS, FISCAL SYSTEMS, AND TERMS IN THE ASIA PACIFIC REGION
Analysis of example PSCs and fiscal terms in the Asia-Pacific region. Evaluating the severity of fiscal terms. How the fiscal components work. How certain fiscal terms can distort oil and gas project investment decisions? How to avoid potential investment distortion in the design or negotiation of fiscal terms. Examples for Indonesia, Malaysia, Thailand, Vietnam, and Australia.
[EXERCISE]: Delegates’ exercises in showing the structure and dynamics of example fiscal regimes in SE Asia.
7. WORLDWIDE FISCAL TERMS
The economic comparison of fiscal terms across the world - severity and efficiency.
8. SUMMARY AND CONCLUSION
The above is a guide to the topics covered during the course and the approximate timing of the topic. The presenter reserves the right to make modifications to these depending on the delegates’ background and experience and the progress of the course.”
What is Upstream Petroleum Economics, Risk, and Fiscal Analysis training course objective?
- GAIN a thorough understanding of oil & gas economic evaluations
- IDENTIFY the main components and CONSTRUCT cash flow projections for your upstream projects
- DETERMINE key elements and determinants involved in making oil and gas investment decisions
- UNDERSTAND and APPLY economic indicators to assess oil & gas industry projects
- QUANTIFY and MANAGE uncertainty and risk faced in upstream business decisions
- APPLY Monte Carlo Simulation and other statistical methods in risk analysis to exploration and production investments effectively
- UNDERSTAND, EVALUATE, and MODEL both fiscal and production-sharing contract terms worldwide
Who should join Upstream Petroleum Economics, Risk, and Fiscal Analysis training course by PetroSync?
The course is designed for upstream E&P professionals with a need for a detailed understanding of upstream petroleum economics :
- Geoscientists
- Reservoir Engineers
- Production Engineers
- Petroleum Engineers
- Planning and Development Analysts/Executives
- Commercial Analysts/Executive/Managers
- Business Planners/Analysts/Executives/Managers
- Production Sharing Executives/Managers
- Project Executives/Manager
- Petroleum Economists
- General Managers
- Finance and Account Executive/Managers
Delegates will be required to bring a Laptop computer with Microsoft Excel
Guy Allinson
Senior Consultant Petroleum Economics Pty Ltd
Guy Allinson has over 30 years’ experience as a practicing Petroleum Economist in the international oil and gas industry. He consults internationally and is a Senior Lecturer at the School of Petroleum Engineering, University of New South Wales. 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 also 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 conducted many oil industry short courses in petroleum economics and PSC/fiscal analysis 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. He has also given frequent presentations to oil and finance industry seminars and conferences.
Guy has delivered training courses and workshops to the following companies: BP, BHP Billiton Petroleum, Saudi Aramco, Shell Australia, Malaysia and Brunei, TOTAL, Chevron Pacific Indonesia, Conoco, Schlumberger, Sinopec, Mobil, Pertamina, Petronas, PetroVietnam, PTTEP, Petrofac, Petrochina, Murphy Oil, BPMigas (Indonesia), Vico Indonesia, Premier Oil, Santos Indonesia, Indonesian Association of Geologists, ONGC, Korea Petroleum Development Corporation, etc.
- Code PST0193-202401
- Start Date 26 Nov, 2024
- End Date 28 Nov, 2024
- Locations Kuala Lumpur, Malaysia
- Cost USD 5250
- Code PST0193-202501
- Start Date 04 Mar, 2025
- End Date 06 Mar, 2025
- Locations Bangkok, Thailand
- Cost USD 5250
- Code PST0193-202502
- Start Date 27 May, 2025
- End Date 29 May, 2025
- Locations Kuala Lumpur, Malaysia
- Cost USD 5250
- Code PST0193-202503
- Start Date 05 Aug, 2025
- End Date 07 Aug, 2025
- Locations Kuala Lumpur, Malaysia
- Cost USD 5250
- Code PST0193-202504
- Start Date 16 Dec, 2025
- End Date 18 Dec, 2025
- Locations Bali, Indonesia
- Cost USD 5450
Upcoming Training
| Code | Start Date | End Date | Locations | Cost | Instructor |
|---|---|---|---|---|---|
| PST0193-202401 | 26 Nov, 2024 | 28 Nov, 2024 | Kuala Lumpur, Malaysia | USD 5250 | Guy Allinson |
| PST0193-202501 | 04 Mar, 2025 | 06 Mar, 2025 | Bangkok, Thailand | USD 5250 | Guy Allinson |
| PST0193-202502 | 27 May, 2025 | 29 May, 2025 | Kuala Lumpur, Malaysia | USD 5250 | Guy Allinson |
| PST0193-202503 | 05 Aug, 2025 | 07 Aug, 2025 | Kuala Lumpur, Malaysia | USD 5250 | Guy Allinson |
| PST0193-202504 | 16 Dec, 2025 | 18 Dec, 2025 | Bali, Indonesia | USD 5450 | Guy Allinson |
