Economic evaluation in the oil and gas industry is an encompassing activity. It involves the bringing together of the principal technical and commercial dimensions of a project into a forecast of future performance, that allows different projects to be compared and ranked according to economic and/or other criteria. At its heart, economics is an organizing and quantification exercise. Increasingly, its boundaries are expanding to include a quantification of risk. Risk analysis is a rapidly growing discipline that can take many different forms. It is best understood and applied one step at a time – for professionals and for organizations.

• Introduce the fundamentals of economic evaluation and of risk analysis in the oil and gas industry.
• Focus on basic, simple and pragmatic solutions.
• Build understanding, apply concepts, use software tools, increase sophistication one step at a time.
• Understand alternative approaches – advantages and disadvantages.
• Use real life examples and situations.

• Develop a clear understanding of the role of economics and risk analysis in an organization.
• Put current economic evaluation/risk analysis practices of your organization into context.
• Choose and apply approaches that make sense to your organization.
• Make better business decisions with better decision tools.

• Sharpen and modernize evaluation skills.
• Become conversant in the languages of economic evaluation and risk analysis.
• Understand fundamentals, learn to take a practical approach.
• Put economics and risk into perspective.

This seminar takes a building block approach to understanding what economic and risk analysis is about. It is designed to become as sophisticated as its participants are comfortable. It will initially be a refresher course for those who are economics professionals and provide a framework for those who are not. We will advance our understanding as a group – learning from real examples and from each other – and we will take a hands-on approach at every opportunity. This is a course for anyone who has an interest in this field.

DAY 1

Introductions

• Who we are, what we hope to accomplish.

Economics 101

• What is economics, where does it fit in an oil & gas company, who are the economists, when do they become activated, why is their work important?
• Exploration versus development versus acquisitions & divestitures.
• The many faces of the economist – economist as expert, organizer, innovator, motivator, communicator.
• The many facets of economics – quantify, optimize, compare and combine projects.
• Beyond economics – financing, financial impact.

The Economic Model

• The framework for economic analysis.
• It’s about cash – cash flow versus income, integrated financial statements, value creation.
• It’s about the future – point forward versus full-cycle evaluations.
• The fundamentals of cash flow projection – revenues and costs.
• Modeling options – software, styles, needs.

DAY 2

• Recap of Day 1

The Economic Model (cont’d)

• An example – cashflow, economic indicators, graphics, analysis.
• In class assignment and presentations.
• Learning to be critical.

Introduction To Risk

• Exploration risk versus development risk – reserves risk, cost/schedule risk.
• Risk versus uncertainty.
• Risk versus opportunity.
• Risk analysis versus sensitivity analysis.
• Quantitative versus qualitative.

Statistics 101

• About probability distributions.
• Basic statistical concepts – mean, median, mode, skewness.
• About combining probability distributions – Monte Carlo simulation, correlation, tendencies.
• Software tools – Crystal Ball, @Risk, other.
• In class assignment and presentations.

DAY 3

• Recap of Day 2

An Exploration Example

• Set the scene – probability of geological success, reserves distribution, minimum commercial field size, truncation, probability of economic success.
• Simple 5-branch decision tree – success case, risked results.
• What it all means.
• An alternative approach – Monte Carlo simulation.
• Decision trees versus Monte Carlo – two sides of the same coin.
• In class assignment and presentations.
• Getting more sophisticated – a real world example.

DAY 4

• Recap of Day 3

A Development Example

• Set the scene.
• Different priorities at different stages – optimizing decisions, costs and schedule.
• Optimizing decisions – a real world example – from sensitivity analysis to stochastic results.
• The importance of presentation – making it simple.
• Where is the value?

DAY 5

• Recap of Day 4

Cost Analysis

• What is it? Why is it important? Benefits and pitfalls.
• Basic concepts – most likely estimates, deterministic totals, contingency and its dynamics.
• A real world example – the long and short of it.

Other Concepts

• Value of Information, Real Options, RAROC, other.
• Keep on exploring and learning.

Recap

• Concepts, applications & implications.
• What it means for you and your organization