Petroleum Project Economics and Risk Analysis

During this five-day program, participants will learn, in a practical and realistic manner, how to analyze the financial performance of oil and gas investments from both the project and corporate reporting perspectives. They will be asked to build financial models for typical oil and gas projects and then identify and incorporate all major risks into the analysis. A major part of the learning is achieved through team participation in a challenging “business game” where they must present their team’s recommendations to the Board.

The instructional format consists of lectures by a respected specialist and team participation in a classic IHRDC business game. The business game typically takes almost one half of the instruction time and is highly rated for its effectiveness in internalizing learning and generating discussion among team participants. In addition to the lectures and business game, this course will utilize additional exercises and case studies to further enrich the classroom experience. This method of blended learning has proven to be an ideal way for participants to learn the practical needs of today‘s international energy markets.



Who Should Attend

This program is designed specifically for energy managers, supervisors, and key employees from broad functional areas, such as finance, technology, and project development who wish to expand their knowledge of investment and risk analysis in managing, developing, and reporting on energy projects, financial modeling, and petroleum project economics.

Lecture Content

Portfolio Theory and Real Options
Managing Price Risk Using Financial Derivatives

Petroleum Industry Overview

Hydrocarbon components and their properties; measurement of oil and gas volume and heating values; conversion of gas to gas-liquids; conversion to barrels of oil equivalent; pricing of crude oil, natural gas and coal on the basis of heating value; major conversion factors. Structure of the Petroleum value chain; regional oil and gas overview in key world markets; analysis of market opportunities; major pricing formulations.

Energy Project Economics and Measures of Performance

Project cash flow analysis, discounting cash flow to obtain present value and internal rate of return, the cost of capital and the effect of debt financing, other measures of project performance. Sensitivity to changes in key variables.

Project Management Fundamentals

The oil and gas industry typically follow and IHRDC has developed its own five-stage process – from opportunity assessment to long-term operation – for analyzing and implementing a project.

Introduction to Financial Statements

Background needed to understand and build models of the four key corporate financial statements; review and discussion of the key measures of financial performance, consideration of the measures used by major companies and those of your company. Steps required to build pro forma financial projections to show how a new project will affect corporate performance.

Project Financing: Commercial Debt Finance

Corporate and project financing; sources of debt and equity financing; public and private sources of capital; multilateral and bilateral sources of financing; risk assessment and mitigation; structuring of financing; preparing the financing plan; negotiating the term sheet; preparing the financing documents; closing and case studies.

Energy Project Risk and Uncertainty

Identifying and quantifying energy projects risks and uncertainty into project analysis. Using statistical measures to quantify risk. Incorporating risk and uncertainty into project analysis. Two key risk assessment methods will be considered in this unit: scenario analysis and sensitivity analysis.

Probability Theory and Quantitative Analysis

Introduction to probability theory including probability density functions, overview of typical probability distributions, and definition of key terms. Applying probability theory in decision analysis with emphasis on concept of expected value.

Decision Tree Analysis and Monte Carlo Simulation

Applying a structured method for investment decision analysis. Understanding the implications of different sets of decisions. Identify areas to reduce risk and understand economic opportunity cost of capital. Identify implications of various forms of contracts. Analyze implications of incremental project decisions. Extend the decision tree analysis framework for situations that include continuous probability scenarios. Identify power and limitations of simulations; emphasis is placed on relevance of expected value.

Stakeholder Impact Assessment and Analysis

Introduce different analysis frameworks to identify stakeholders affected by energy projects, assess the impact on each group identified, and develop strategies to address the social welfare.

Financial Analysis Business Game: Oceana

This business game is an integral part of the learning process. Participants, working in teams, will evaluate an oil and gas business opportunity in the Republic of Oceana, near Indonesia. They build a financial model that will integrate various risks associated with the investment. This model will utilize a proposed Production Sharing Agreement and incorporate revenue, capital, and operating costs, financing costs, and tax projections for the life of the project. Throughout the program teams will add layers of complexity to the model by incorporating different risk analysis tools presented in the lectures. The teams will present their project analysis to a decision review board by outlining the risk profile and expected performance measures of the project. They then learn the outcome of those decisions. Emphasis will be placed on the practical implementation of the tools presented and on developing practical financial modeling skills.