Petroleum Economics & Fiscal Modeling

Understand how oil & gas companies value upstream assets – exploration acreage, undeveloped discoveries, and producing fields. Plus, learn the basis of fiscal system design, compare the impacts of alternative fiscal

systems, and perform detailed audits of fiscal calculations.

Course, delegates will: Receive, a life­time licence to the course version of PEET® – the Excel­based world

cashflow model ­ with full access to model formulas and audit calculations. Understand how key project assumptions – production, prices and costs – are

modelled in the oil and gas industry. This component includes a discussion of different cost definitions – technical costs, opportunity cost, and finding & development costs.

Learn what various economic indicators – like NPV, EMV, and IRR – actually mean. Identify the three criteria necessary to determine a good fiscal system. Examine how assets at different stages of their life are valued in investment

decisions, including the application of risk analysis to exploration opportunities. Review the vast array of fiscal and contract terms employed by governments

around the world for oil and gas projects and identify trends in the evolutionof fiscal terms.

Work with PEET® to understand how different fiscal terms are included in the cash flow analysis and evaluate the impact of the terms on project economics, including the importance of investor tax position, as well as ring fencing, gold­plating, and incremental analysis.

Audit the detailed calculations required for complex fiscal instruments; e,g, corporate income tax, ROR profit sharing, and R­Factors.

Compare the pros and cons of different fiscal instruments from both the investor andgovernment perspectives.

Participate – supported by PEET®, participate in the determination of the appropriate bonus bid for a project based on agreed project inputs and fiscal terms, including alternate fiscal combinations to meet the objectives of both investors and resource owners.

Draw on the trainer's 25+ years' experience as a petroleum economist andfiscal advisor.

Petroleum Economics and Fiscal Modeling

DAY 1Introductions Establish the attendees’backgrounds and their objectives for the course Establish the course framework,nature of exercises and ultimatedeliverables

Module OneUNDERSTANDING PETROLEUMECONOMICS Introducing the spreadsheet model. Inputting key variable assumptions: oil/gas production, prices, costs. Generating revenue and cash flows. The importance of cash flow timing. Establishing the project value (before government gets involved) ­ Review of investment indicators ­ Meaning and calculation of Net Present Value, IRR, etc. Sensitivity Analysis. EMV Analysis ­ Adding risk factors & calculating Expected Monetary Value (EMV) Gambler’s Ruin ­Understand Gambler’s Ruin, determine the optimal working interest, appreciate the value of Joint Ventures. Joint Ventures: National oil company equity participation and its impact on project economics, including carried interest.

DAY 2Module TwoUNDERSTANDING PETROLEUMFISCAL SYSTEMS Resource Owner Share (Government Share or Take) ­ the fiscal cost of doing business, the price for resource access. Economic Rent – the basis of government share. Fiscal system classification – concessions, production sharing contracts, and service fee agreements. The various fiscal instruments – world­wide survey Discuss the three criteria necessary to determine a good fiscal system.

WORKING WITH FISCAL SYSTEMS Adding basic fiscal terms to theModel. The impact of Government Shareon project economics. Corporate Income Tax – taxable income, depreciation, audit, & rates. Behaviour of different fiscal instruments & combinations. The importance of investor tax position, ring fencing, gold plating, and incremental analysis. Fiscal progressivity and the criteria for measuring fiscal system health.

COMPARING FISCAL SYSTEMS Comparing different fiscal systems – inter­jurisdictional comparison. Selected systems ­ fiscal sub­component analysis and auditing. Discuss how, when, and why fiscal terms change over time.

DAY 3Module ThreeANALYSIS TASK Agree on fiscal terms for a hypothetical upstream project. Delegates will be assigned to ‘government’ and ‘investor’ teams to determine the appropriate bonus bid and to propose two alternative sets of fiscal terms that achieve both investor and government objectives. Discuss pros and cons of the proposed fiscal alternatives – supported by model results.

ECONOMY & NEGOTIATIONS ­ STAKEHOLDER PERSPECTIVES Review the various perspectives important to supporting negotiations. Discuss how the upstream economics and fiscal impacts relate to and impact the broader economy – including consideration of foreign vs local participation and ownership, leakages from imports and remitted profits, indirect benefits and costs, and income & employment multiplier benefits and costs.

WORLD FISCAL TRENDS Review of world fiscal trends and international best practices

WRAP­UP SESSION Have attendees’ objectivesbeen met?Do they feel more confident in performing economics analysis and analyzing fiscal systems?

The entire three days is organized as a case study where you are asked by management to:1. Identify three (3) fiscal system options for government’s consideration;2. Estimate the bonus bid and overall upstream direct government revenue that would be expected under

each fiscal system option; and,3. Recommend to government which fiscal system should be adopted and why. The recommendation

must be supported by analysis.