Applied Petroleum Economic Analysis and Risk Analysis


This course is a practical petroleum economics course, which introduces participants to the methods and practices the international oil industry uses to examine the economic viability of upstream oil and gas projects. Many of these methods and practices are also used extensively in other industries. The course is a practical foundation, which the course participants can use to carry out their own economic evaluations or to review critically evaluations prepared by others.

The course covers cash flow analysis, economic indicators, risk and uncertainty, fiscal analysis and techniques for valuing oil and gas properties and companies.

The course is a practical course that aims to give the participants the ability to understand the role of petroleum economics in investment decision making and how to use petroleum economics in their work. It aims to give participants the ability to:

  • Understand and construct petroleum industry cash flow projections.
  • Calculate, understand and know how to apply economic indicators.
  • Understand and apply risk analysis to E&P investments.
  • Evaluate and model fiscal/PSC terms of countries worldwide.
  • Value oil and gas properties


Role and Purpose of Petroleum Economics: Investment decisions and petroleum industry risks.

  1. Cash Flow Analysis: Cash flow for an oil and gas project, the difference between cash flow and profit. Cash flow and petroleum taxation. Cash flow and production sharing contracts. Depreciation in cash flow analysis. Cash flow analysis and inflation. Nominal and real cash flows – avoiding the pitfalls. Project financing and cash flows.
  2. Economic Indicators: Net present value (“NPV”) calculations. The meaning of NPV Internal rate of return – measurement and meaning. Problems with internal rate of return. Incremental economic analysis techniques (accelerated production example). Payback calculations. Profit – to – investment ratio calculations and their use. Comparison of economic indicators and their use in the oil and gas industry.
  3. Risk Analysis: Treatment of risks given corporate circumstances and objectives Using probabilities, the meaning of Expected Value and its use in E&P investment decisions. Assessing exploration and project risks, decision trees and their use in exploration and development decisions. Sensitivity analyses. Simple probability analyses. Probability distributions and their use. How Monte Carlo analyses work and how they are used in practice. Reserves distributions. Portfolio analysis
  4. Fiscal analysis: Defining Government Take. Aims of fiscal regimes. Components and workings of fiscal regimes. Comparison of severity of fiscal regimes worldwide. Efficiency of fiscal regimes worldwide. Worked example of royalty/tax regime, Worked example of PSC contracts. Incremental economic effects of fiscal regimes. how an example PSC works
  5. Valuing Petroleum Properties: Purposes of valuations. The difference between value and price. Methods of valuing properties (market values, intrinsic values, fair market values). Valuations and risk analysis. Valuing exploration acreage. Valuing reserves. Tax and PSC effects. Matching risks.

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