Oil and Gas
Oil and Gas | Commercial and Risk Analysis
Business Impact: This course will provide attendees with methods to identify and incorporate subsurface, facilities, and commercial uncertainties into an economic evaluation of a project. Additionally, it will provide practice with tools to manage the associated risks, thereby reducing the investor’s exposure to financial downside while taking advantage of potential upside.
This course details the main financial concepts and economic evaluation techniques and related financial concepts that are used in the oil and gas upstream business to assist decision making. The course will focus on the conversion of hydrocarbon volumes to ‘monetary value’ and the requirement for consistent means of determining the attractiveness of investment opportunities through the field lifecycle. Portfolio decision making will also be discussed.
Duration and Training Method
This is a classroom or virtual classroom course comprising a mixture of lectures, discussion, case studies, and practical exercises involving the use of bespoke software tools.
Participants will learn how to:
- Employ the principal elements and techniques of petroleum economics.
- Analyse wider trends that determine worldwide hydrocarbon reserves, supply and demand pressures, and forecast trends for the future.
- Illustrate how petroleum economics is critical to the project decision-making process.
- Analyse the nature of discounted cash flow, Net Present Value, Rate of Return indicators, and the Cost of Capital.
- Demonstrate how Profitability and Efficiency are measured for a project, including the role of inflation.
- Distinguish the various Petroleum Fiscal Systems in operation around the world (tax and royalty-based, PSC’s).
- Examine more fully how projects are screened and ranked economically.
- Perform sensitivity analysis, Monte Carlo simulation, and decision tree analysis.
- Apply quantitative risk analysis tools, such as the Bow Tie model, to identify and manage project risk and to capture actions on a risk register.
- Understand the risk management benefits of building a portfolio of E&P assets.
- The global oil and gas industry; distribution of reserves; world supply and demand; trends for the future including the influence of renewable energy sources
- The role of petroleum economics in decision making
- The input required for constructing a project cash flow
- Principles of cash flow analysis
- Constructing the project cash flow (exercise)
- Indicators from the undiscounted project cash flow (exercise)
- Petroleum Fiscal Systems; tax and royalty, Production Sharing Contracts
- The principles of discounting
- Discounted cash flow (exercise)
- Indicators from the discounted cash flow (NPV, IRR)
- Use and abuse of EXCEL to calculate NPV, IRR
- Calculating the cost of capital (weighted average cost of capital)
- Profitability indicators and efficiency ratios (exercise)
- Project screening and ranking (exercise)
- Incorporating inflation into the project economics
- Understanding real terms, money of the day (MOD), Internal Real Rate of Return
- Sensitivity analysis and spider diagrams (exercise)
- Analysis of incremental project economics; alternative methods
- Operational decision making (exercises)
Risk and Uncertainty Analysis
Defining Uncertainty and Risk; Statistician’s vs Practitioner’s View
- Identifying relevant parameters that exhibit uncertainty
- Expressing uncertainty as probability distributions with basic statistics
- Distribution types (normal, triangular, log-normal, etc.,)
- Combining uncertainties; Monte-Carlo methods
- Getting to know TRACS MCApp (or @RISK) for Monte Carlo simulation (exercise)
- Understanding and incorporating exploration risk (case-study based exercise)
- Exploration risking and expected monetary value EMV (exercise)
- Decision tree analysis
- Use of MCApp to create P90, P50, P10 estimates
- Combining continuous distributions with decision tree analysis
Economics of Appraisal
- The objectives of appraisal; Value of Information (VOI) concepts
- Appraisal planning for added value (exercise)
Heuristics - Human Bias in Uncertainty Estimation
- Identifying and managing human bias - results from psychological studies
Risk and Uncertainty in Development Planning
- Causes and consequences - the Bow Tie Model (exercise)
- Managing risk - the risk register and action plan (exercise)
- Development concept selection and the concept select matrix
- Portfolio theory
- Portfolio benefits in an E&P context
Who Should Attend and Prerequisites
E&P professionals of all disciplines (including geoscientists, engineers, and managers) who wish to obtain an understanding of petroleum economics and risk analysis, and those who are transferring from a technical discipline into the world of commercial evaluation.
Mark Cook is a Principal Reservoir Engineer for TRACS International. His specialties are reservoir engineering, petroleum economics, and risk analysis and field development planning, subjects in which he has developed and delivers training courses to advanced levels.
Mark graduated with a degree in Chemical Engineering and has worked in the oil and gas industry since 1981, spending the first eleven years with Shell International as a reservoir engineer on field development projects, equity negotiations and operations in the UK, Oman, Tanzania and Holland. He then co-founded TRACS International in 1992, setting out to provide training and consultancy to the upstream industry. He built the business over time as Petroleum Engineer and Director, before taking on his current part-time role as Principal Reservoir Engineer.
He runs the SPE Short Course in Field Development Econmics, and has been an SPE Distinguished Lecturer in Risk Analysis. He is a guest lecturer at Heriot Watt Univeristy. He is co-author and editor of "Hydrocarbon Exploration and Production" (Jahn, Cook, Graham, 2008) and has written "Petroleum Econmics and Risk Analysis", published by Elsevier in January 2021.
Affiliations and Accreditation
MBA, Henley Management College
BSc, University of Nottingham, Chemical Engineering
Director, Delta-T Energy Consultancy Ltd. (Dublin)
N006: An Introduction to Reservoir Engineering for Geoscientists
N014: Petroleum Economics and Risk Analysis
N444: Development Planning For Mature Fields