Economics of Upstream Project


Course Content 

1- Project evaluation principles:
Cash flows, principles of discounting, Net Present Values, Internal Rate of Return, Pay out Time, Capital Productivity Index

2- Building a structured model for an upstream project:
Review of main inputs:

    a) Technical:

     - Exploration work program cost estimating rules
- Recoverable reserves
- From recoverable reserves to production profiles : decline rates
- Development program cost estimating rules
- Abandonment

     b) Prices:
- Prices of products assumptions : oil , gas , Lpg, condensate prices
- Oil prices differentials, Futures swaps put options

     c) Fiscal terms:
- Concession type agreements, production sharing agreements : cost oil profit oil mechanism, service Contracts

     - Principles of taxation and depreciation

     - Workshop with individual computers: Model building with participants
- How to structure the model and ease navigation

     - Running scenarios

     - Relevant graphs

     - Discussion of outputs

     - From single case to sensitivities: spider and tornado charts

3- Taking into account risk and uncertainty

    a) Discrete probabilities:

    - Exploration risk, reserves cases: low medium high

    - Building decision trees: Chance nodes, decision nodes, Expected Value concept

    - Workshop with individual computers: introduction of exploration risk and reserves scenarios in  the deterministic model

    b) Continuous probabilities:

    - Random variables distribution, cumulative distribution

     - Application to reserves calculation formula: representing input uncertainties by distributions,  Correlations between inputs. Type of distributions : uniform , triangular, lognormal… Interpreting distributions of reserves outputs P90, P50, P10, Expected reserves, standard deviation…Adding 2 distributions. Workshop with individual computers to run Monte Carlo simulations

     - From Monte Carlo simulation of reserves to Monte Carlo simulation of NPV

     - Challenges to build such models

     - Swanson’s rule or other rules to go back from the distribution of reserves to discret reserves

NB : This training can be delivered in Frensh Language