Economic Aspects of Production Sharing Contracts

This workshop provides practical guidance in the application of the techniques of the economic analysis currently used in the oil & gas industry with special emphasis on the Production Sharing Contract (PSC). Techniques for predicting profit, production, costs, and cash flow enable the analyst to evaluate decision alternatives for optimum results. Understanding economic indicators, risk and uncertainty, different economic structures such as tax regimes and production sharing contracts, enhances the quality and the value of economic analysis.

Who Should Attend?

Engineers, geologists, economists, accountants, technicians who need to learn how to conduct economic evaluation and to understand the role of petroleum economics of Production Sharing Contracts in investment decision making. This workshop is also recommended for supervisors & managers in the Planning, Exploration, Production, Projects, Financing and Technical Departments in Oil & Gas Companies

The Goals

The Primary Objectives of the Course are to: o Understand various economic terms used in the oil & gas industry o Understand how to develop economic models of various petroleum fiscal regimes with emphasis on Production Sharing Contracts. o Carry out cash flow analysis and determine economic indicators o Carry out different economic analyses for petroleum related projects o Evaluate and quantify risks and uncertainties o Make the right investment decision in the presence of risk o Carry out a comprehensive PSC economic evaluation study for any petroleum related project including risk analysis and sensitivity study using spreadsheet

The Process

The workshop will include a number of exercises aimed at enhancing each participant capability to conduct various economic evaluations. In addition each participant will attempt to develop spreadsheet calculations of various economic analyses. At the end of the workshop each participant will be given a comprehensive spreadsheetprogram that can carry out a complete PSC economic evaluation including a sensitivity analysis. Additionally, the workshop assumes no or limited prior knowledge of the topics covered in the course. New concepts and tools are introduced gradually to enable delegates to progress from the fundamental to the advanced concepts of economic evaluation.

The Benefits

Participants will gain the knowledge and skills of evaluating upstream petroleum assets, including the determination of economic indicators and analyzing risk and uncertainty.

The Results

This course is a practical petroleum economics course, which introduces participants to methods and practices utilized in the international oil industry, including PSC, to examine the economic viability of upstream oil & gas projects. The development and the application of spreadsheet models will enable participants to evaluate the economics of a field development project.

Core Competencies 

Experience gained will allow participants to apply tools for analyzing risk and uncertainties. o Participants will be able to prepare cash flow analysis including the determination of economic indicators o Experienced gained will include quantifying and qualifying risk and uncertainty through decision analysis and sensitivity analysis. o Participants will be able to determine recoverable reserves using probabilistic methods. o Participants will understand the role of PSC petroleum economics in evaluating reservoir development project and minimizing Risk.

Course Outline

• DAY 1 - Cash Flow Analysis  Familiarization with Economic terms. Feasibility Studies  Setting up Cash Flow Calculation Production Sharing Contracts Cost Recovery and Profit Oil Factors Depreciation Loss Carry Forwards  Inflation Sunk Costs Project Financing
• DAY 2 - Economic Indicators  Economic Indicators Definitions  Present Value Concept  Discount Factor  Net Present Value  Internal Rate of Return  Effect of Project Delay  Payback Period  Profit/Investment Ratio  Incremental Projects Comparing Economic Indicators
• DAY 3 - Risks and Uncertainties Risk & Uncertainty Expected Value Concept Decision Tree Analysis Farm out Decision Probability Analysis · Sensitivity Analysis Spider and Tornado Diagrams Probability Distribution Monte Carlo Simulation
• DAY 4 - Setting up Spreadsheet Calculation Introduction to Spreadsheet Calculation Simple Cash Flow of PSC Using Excel
• DAY 5 - Setting up Oil Field Development Model Setting up an Integrated PSC Economic Model of a Typical Oil Field Development Project including Sensitivity Analysis
• Construct a production sharing contract spreadsheet model, derive relevant economic  metrics and draw conclusions to aid decision-making

Course Lecturer

S. M. Zeglam: Over 35 years of industrial experience in petroleum engineering, reservoir engineering/management, production operation, property evaluation and planning in major oil & gas companies. Developed and presented petroleum related courses throughout Europe, Asia, North Africa and the Middle East.