Economic Aspects of Production Sharing Contracts

This workshop provides practical guidance in the application of the techniques of the economic analysis currently used in the oil & gas industry with special emphasis on the Production Sharing Contract (PSC). Techniques for predicting profit, production, costs, and cash flow enable the analyst to evaluate decision alternatives for optimum results. Understanding economic indicators, risk and uncertainty, different economic structures such as tax regimes and production sharing contracts, enhances the quality and the value of economic analysis.

The Goals:

The Primary Objectives of the Course are to:

• Understand various economic terms used in the oil & gas industry
• Understand how to develop economic models of various petroleum fiscal regimes with emphasis on Production Sharing Contracts.
• Carry out cash flow analysis and determine economic indicators
• Carry out different economic analyses for petroleum related projects
• Evaluate and quantify risks and uncertainties
• Make the right investment decision in the presence of risk
• Carry out a comprehensive PSC economic evaluation study for any petroleum related project including risk analysis and sensitivity study using spreadsheet

The course is suitable for

Engineers, geologists, economists, accountants, technicians who need to learn how to conduct economic evaluation and to understand the role of petroleum economics of Production Sharing Contracts in investment decision making. This workshop is also recommended for supervisors & managers in the Planning, Exploration, Production, Projects, Financing and Technical Departments in Oil & Gas Companies

This course is a practical petroleum economics course, which introduces participants to methods and practices utilized in the international oil industry, including PSC, to examine the economic viability of upstream oil & gas projects. The development and the application of spreadsheet models will enable participants to evaluate the economics of a field development project.

Core Competencies:

• Experience gained will allow participants to apply tools for analyzing risk and uncertainties.
• Participants will be able to prepare cash flow analysis including the determination of economic indicators
• Experienced gained will include quantifying and qualifying risk and uncertainty through decision analysis and sensitivity analysis.
• Participants will be able to determine recoverable reserves using probabilistic methods.
• Participants will understand the role of PSC petroleum economics in evaluating reservoir development project and minimizing Risk.

DAY 1

Cash Flow Analysis

• Familiarization with Economic terms.
• Feasibility Studies
• Setting up Cash Flow Calculation
• Production Sharing Contracts
• Cost Recovery and Profit Oil
• “A” and “Base” Factors
• Depreciation
• Loss Carry Forwards
• Inflation
• Sunk Costs
• Project Financing

DAY 2

Economic Indicators

• Economic Indicators Definitions
• Present Value Concept
• Discount Factor
• Net Present Value
• Internal Rate of Return
• Effect of Project Delay
• Payback Period
• Profit/Investment Ratio
• Incremental Projects
• Comparing Economic Indicators

DAY 3

Risks and Uncertainties

• Risk & Uncertainty
• Expected Value Concept
• Decision Tree Analysis
• Farm-out Decision
• Probability Analysis
• Sensitivity Analysis
• Spider and Tornado Diagrams
• Probability Distribution
• Monte Carlo Simulation

DAY 4

Setting up Spreadsheet Calculation

• Introduction to Spreadsheet Calculation
• Simple Cash Flow of PSC Using Excel

DAY 5

Setting up Oil Field Development Model

• Setting up an Integrated PSC Economic Model of a Typical Oil Field Development Project including Sensitivity Analysis