The 10-Day Advanced Project Economics & Risk Management for Oil & Gas Professionals

Improve Decision-making and Increase Investment Effectiveness

Introduction

The petroleum industry is one of the most important, highly capital intensive and risky business. Global exploration and production spending in 2013 was $644 billion, up 7% from $604 billion the year before. In 2014, the exploration budgets reached $654 billion but this fell to $521 billion in 2015 and in the following year, 2016, there was a further decline of 27%. This year’s global exploration and production spending is expected to increase 7%.

The upstream sector’s profit margins are under real pressure from many factors such as higher costs of developing new reserves, less oil and gas found per foot of exploration drilling, rising inflation, global oversupply and price volatility. Competition for investments, for acreage / concessions, aging of existing reservoirs, the of unconventional oil and gas revolution all contribute business risk and uncertainty.

Petroleum industry projects are by their very nature risky, the challenge however is in assessing, managing, and mitigating this risk proactively. The three biggest planning challenges are predicting costs, assessing profitability, and risk management. All these tasks occur in the early stages of capital planning and failure to adequately evaluate these elements can lead to heavy losses.

This LAKESHORE ISL training will highlight:

• Identification of the stages required in the risk analysis process, i.e., preparing, modeling, and running risk analysis
• Development of the risk model, assessing probabilities to various variables, risk analysis, and explore the impact of uncertain variables
• Enable the participants to create reports such as, tornadoes diagrams, scatter plots and cumulative probability functions, using excel
• Application of decision trees and Monte Carlo-based simulations to generate profitability indicators
• Enable the participants to develop probabilistic cashflow reports along with probabilistic profitability indicators for decision-making

Objectives

The primary objectives of this LAKESHORE ISL training are to:

• Learn how to handle uncertainty in petroleum projects
• Understand different economic terms used in the oil & gas industry
• Understand the expected value concept and learn its impact on decision tree analysis
• Learn expected theory concepts and attitudes towards risk, risk eversion and risk premium
• Acquire spreadsheet skills including simulation software @RISK
• Carry out cashflow analysis, for petroleum related project and use common economic indicators to evaluate between competing alternatives
• Carry out a comprehensive economic study evaluating petroleum related projects using risk and sensitivity analysis by means of spreadsheets

Training Methodology

This LAKESHORE ISL Advanced Oil & Gas Project Economics, Risk & Decision Analysis training will incorporate a mix of learning methods, including but not limited to, high quality power point slides, short videos and active class participation.

An in-depth knowledge of quantitative risk analysis techniques and hands-on problem solving skills will be developed during this LAKESHORE ISL training. Participants will use PC’s to solve a variety of problems better enabling them to utilize the taught material. Furthermore, this LAKESHORE ISL Oil & Gas Technology training will enable the training delegates to reach an optimum decision in capital spending.

This training approach will be facilitated using Microsoft Excel add on @Risk module and will further assist in promoting discussions among the participants.

Organisational Impact

By sending delegates on this five-day LAKESHORE ISL training, your organization will benefit by:

• Learning how to apply economic valuation and risk assessment processes and techniques within the global oil and gas industry
• Help the participants to identify and analyze the risk involved in a petroleum related project
• Assist the participants to apply the decision-making procedures to justify the petroleum projects in terms of profitability
• Participants learn the decision analysis process and foundation concepts so they can actively participate in multi-discipline evaluation teams
• Monte Carlo simulation is discussed and experienced in detail in hands-on exercises
• Adding value to the oil and gas company’s active projects, through the use of case studies
• Help participants to recognize and identify the influencing parameters for oil and gas field developments

Personal Impact

By attending this LAKESHORE ISL training, you will:

• Learn how to describe the elements of the decision analysis process and grasp how construct a project cashflow model incorporating sensitivity analyses
• Evaluate investment and design alternatives with decision tree analysis
• Gain the operational decision making techniques using @Risk
• Gain valuable knowledge in identifying the important uncertainties in petroleum projects
• Enhance your awareness of the influential parameters in an oil and gas field development projects

Who Should Attend?

This training is designed to provide technical and practical approaches to executing a petroleum related project in the upstream sector.

This training is suitable to a wide range of professionals but will greatly benefit:

• Planning Managers
• Oil & Gas Engineers
• Project Managers
• Analysts
• Commercial Managers
• Economists
• Government Officials
• Geologists
• Business Advisors
• Asset Managers
• E&P Managers
• Product Managers

 

Seminar Outline

The training is split into two modules:

MODULE I – Project Analysis: Tools & Techniques for Managing Risk & Uncertainty

MODULE II – Advanced Oil & Gas Project Economics, Risk & Decision Analysis

Each module is structured and can be taken as a stand-alone training course; however, delegates will maximise their benefits by taking Module 1 and 2 back-to-back as a two-week training course.

Module I: Project Analysis: Tools & Techniques for Managing Risk & Uncertainty

DAY 1

Fundamentals of Decision Analysis

• What is Project Decision Analysis?
• Selecting Projects to meet Organizational Goals
• Defining Projects, Identifying Key Decision-making Factors
• Risk and Uncertainty in Projects
• Fundamental Tools of Engineering Economics
• Time Value of Money, Compounding, Discounting, Annuity
• Appraisal Methods (Payback, Discounted CashFlow, Net Present Value (NPV), Equivalent Annual Value (EAV)
• Financial Analysis using Microsoft Excel

DAY 2

Rate of Return and the Cost of Capital

• Rate of Return Computations (IRR)
• Advantages and Disadvantages of Profitability Models
• Estimating the Cost of Capital for a Project
• Benefit-Cost Ratio (BCR)
• Comparing Mutually Exclusive Projects with Equal Lives; Comparing Projects with Unequal Lives
• Using NPV, IRR, BCR, EAV in Project Selection
• Comparing mutually exclusive projects using Incremental Benefit-cost Ratios

DAY 3

CashFlow Modelling and Project Decision Analysis

• Project Decisions and Total Cost of Ownership
• Financial Modelling and Project Evaluation: Capital Expenditures (CAPEX), Operating Expenditures (OPEX), Working Capital requirements, Incremental Costs and Benefits, Terminal Cashflows
• Preparing Cashflow Projections (cashflows vs. accounting profits, inflation, opportunity costs, overheads and synergies, sunk costs, depreciation, taxation, interest, insurance, etc.)
• Developing Cashflow Models and Testing Assumptions
• Business Case Content

DAY 4

Decision Analysis: Expected Value Concept

• Overview of the Risk Management Process
• Risk Tolerance and Risk Prioritization
• Risk Quantification and Expected Monetary Value (EMV) Concepts
• Decisions under Certainty, Risk and Uncertainty
• Basic Probability Concepts
• Probability Applications: Program Evaluation Review Technique (PERT), Monte Carlo Analysis
• Assessing the Probability of Completing a Project within the Desired Budget
• Contingency

DAY 5

Decision Analysis: Decision Trees, Scenario, Sensitivity Analysis and Simulation

• Decision Tree Analysis
• Scenario Analysis
• Sensitivity Analysis and Tornado Diagram
• Integrated Practical Application
• Presenting Decision Analysis

 

Module II: Advanced Oil & Gas Project Economics, Risk & Decision Analysis

DAY 6

Development Economics

• A Brief History of Energy Usage
• Principles of Development Economics
• Understanding of Economic terms
• Inflation and its Impact on Nominal & Real CashFlows
• Project Financing

DAY 7

Uncertainty in Investments

• Handling Uncertainty in Capital Projects
• Understanding Probability Concepts
• The Expected Value Concept: Features and Pitfalls
• Expected Monetary Value (EMV)
• Expected Profitability Index (EPI)
• Expected Opportunity Loss (EOL)

DAY 8

Risks and Uncertainties

• Risk & Uncertainty
• Risk Eversion and Risk Premium
• Exploration Project Threats and Opportunities
• Economic Decision Criteria
• Decision Tree Analysis
• Probability Distribution
• Case Study: Monte Carlo Simulation

DAY 9

Setting-up Spreadsheet Calculations Using Excel

• Spreadsheet Calculations
• CashFlow Analysis
• Sensitivity Analysis Calculations
• Tornado Diagrams
• Introduction to Monte Carlo Simulations using @Risk
• Class Exercises: Setting-up an Oil Field Project

DAY 10

Practical Use of the @Risk add-on: Oil Field Development Model

• Developing an Integrated Economic Model of an Oil Field Development
• Developing and using an @Risk Model Analysis
• Project Sensitivity Analysis utilizing data from @Risk Model
• Training Final Review and Close