Oil and Gas
Oil and Gas | Commercial and Risk Analysis
Petroleum Economics, Risking and Decision-Making
Format and Duration:
2 days
4 sessions
This course introduces the economic evaluation techniques that are used in the oil and gas upstream business. Exploration risk in decision-making will be demonstrated using the concepts of expected monetary value, decision trees, and Bayes Theory. Decisions in E&P ventures are affected by heuristics (mental short-cuts) and biases in the estimation of key variables, due to intrinsic uncertainty associated with alternative interpretations and lack of data. The course will illustrate these heuristics and biases by awareness exercises, E&P examples, mitigation tools, and exercises to practice lessening their impact.
Business impact: Participants on this course will become familiar with the economic evaluation techniques used in the oil and gas upstream business to assist decision-making throughout the E&P lifecycle. They will learn exploration risking techniques to enhance their decision-making capability. By appreciating the heurstics and biases that can affect business decisions, participants will ultimately reduce negative impacts of these in their work.
Schedule
Duration and Training Method
A classroom or virtual classroom course comprising lectures, discussions, exercises, and case studies.
Course Overview
Learning Outcomes
Participants will learn to:
- Illustrate how petroleum economics is critical to the project decision-making process.
- Understand the basic principles of petroleum economic analysis such as the time value of money, discounting, and other project cash flow measures.
- Calculate the economic indicators, Net Present Value and Rate of Return, along with the Cost of Capital (Weighted Average Cost of Capital).
- Understand exploration risk and prospect ranking using expected monetary value (EMV).
- Appreciate Bayes theory and illustrate its pertinence to exploration risking.
- Deploy decision trees to lay-out the logic and evaluate the robustness of the decision.
- Recognize the various types of heuristics and biases and be able to distinguish between them.
- Identify, in various case studies, which heuristics contribute to erroneous decisions and understand how bias is manifested in various assessments.
- Practice through exercises on range and probability estimation the need to keep ranges as wide as possible.
Course Content
The following briefly summarises the course content:
Session 1
- Heuristics questionnaire
- Introduction
- Risk and uncertainty
- Decisions with uncertainty
- Exploration risk
Session 2
- Principles of cash flow analysis
- Discounted cash flow
- Calculating the cost of capital
- Incorporating exploration risk
- Exploration ranking using EMV
Session 3
- Heuristics & biases
- Exercise: Range estimation
- Exercise: Probability estimation
- Mitigation techniques
Session 4
- Bayes Theory
- Decision trees
- Case studies
- Wrap-up
Who Should Attend and Prerequisites
Individuals working in geoscience, engineering, management, finance, administrative, or operational roles involved in the E&P process who wish to obtain an understanding of petroleum economics and decision-making.
Instructors
Pete Smith
Background
Pete Smith is Director of ReganSmith Associates, a company offering training and consultancy to the Oil and Gas Industry. Pete trained as a reservoir engineer and researcher firstly at the UK government research Institute of Hydrology, Oxford, before joining BP’s research team to lead the development of novel modelling methods; building the first stochastic models to describe multi-phase fluid-flow in reservoir rocks. Moving into BP operational activities, he was responsible for creating the processes for managing the uncertainty in value and reserves in new field developments that became the BP standard approach.
Assignments with BP included lead engineer on Dukhan, Arab C Reservoir, Qatar; the appraisal and financial sanction of the Harding, Andrew, Foinaven and Schiehalion fields in the UKCS and managing the operated production in the Gulf of Mexico. Pete was also the founding director of the BP Institute at Cambridge University concerned with fundamental research in fluid-flow and was responsible for building their environmental technology across the BP group as Technology Vice President.
Pete helped establish the new Engineering University in Trinidad & Tobago as Associate Provost (R&D) and Professor of Petroleum Engineering between 2004 and 2008. On return to the UK, Pete became Principal Advisor in Reservoir Engineering at RPS Energy leading company reserve audits. In 2010 Pete led the Upstream Risk Management advisory activity and in 2011 became Chief Reservoir Engineer.
Affiliations and Accreditation
BSc Mathematics
MSc Differential Equations
PhD Earth Sciences
C Eng. FEI Chartered Petroleum Engineer
Courses Taught
N401: Multi-Disciplinary Skills for Field Development Planning and Approval
N412: A Critical Guide to Reservoir Appraisal and Development
N415: Reservoir Characterisation for Appraisal and Development
N541: Petroleum Economics, Rick and Uncertainty
N584: Storage Exploration – Screening and Selection of CO2 Sites
N680: Multi-Disciplinary Skills for Sustainable Field Development Planning for Hydrocarbon and CCS Projects
N716: Reservoir Engineering Aspects of Reservoir Modelling
N721: Resource Risk and Economic Evaluation
N952: Resource Assessment and Assurance
N954: Practical Approaches to Increased Recovery
N995: Managing Uncertainty and Risk in Appraisal and Development
Accreditation and Certification
CEU: 1.4 Continuing Education Units
PDH: 14 Professional Development Hours
Certificate: Certificate Issued Upon Completion
RPS is accredited by the International Association for Continuing Education and Training (IACET) and is authorized to issue the IACET CEU. We comply with the ANSI/IACET Standard, which is recognised internationally as a standard of excellence in instructional practices.
We issue a Certificate of Attendance which verifies the number of training hours attended. Our courses are generally accepted by most professional licensing boards/associations towards continuing education credits. Please check with your licensing board to determine if the courses and certificate of attendance meet their specific criteria.