Basic Petroleum Economics

COURSE DESCRIPTION: Energy companies spend money exploring, appraising, and developing oil and gas fields, as well as constructing the infrastructure to produce the fields. Economics are used throughout the life cycle of the asset to provide guidance to managers who are making decisions regarding acquiring leases, gathering data about the producing formations, drilling wells, and creating an asset development plan for the field. Decisions are made regarding secondary and tertiary recovery, infill drilling, divestiture or abandonment of fields using economic models. The work of the petroleum has a significant impact on the successful efforts of the company.

LEARNING OUTCOMES:

• Fundamental concepts of cash flow from one entity to another including is it relevant, how big is it and when does it occur?
• Cash flow within the phases of the asset life cycle including exploration, appraisal, development, production, and decommissioning.
• Concession and contractual fiscal terms, production sharing contacts, royalty or production taxes, cost recovery
• Net cash flow projections, discounting, net present value (NPV), return on investment (ROI)
• Economic metrics including unit costs, margin, payback, internal rate of return (IRR), present value index (PVI) and corporate hurdle rates
• Building discounted cash flow models
• Incremental economics
• Full cycle economics from exploration to abandonment
• Decision analysis, decision trees, Swanson’s rule, expected monetary value (EMV)
• Sensitivity analysis