Revenue, Capex, Opex 3 Reserves 3 Sunk costs: 3 Opportunity Costs: 3 Royalty, Tax, Ring fencing 4 Types of Petroleum Fiscal Regimes 4 Net Cash Flow 4 Concessionary system vs. Production Sharing contracts 5 Going Internation – Bidding Process 5 Economic Modelling 6 Production Costs 7 Wildcat 7 What is the wild cat success ratio? And what are the considered factors? 7 Depreciation 8 Abandonment 8 Goodwill, Leases, Ringfencing 9 Volatility of Crude Oil 9 Volatility of Gas 10 Forecasting 10 Opportunity cost 12 Present Value 12 Profitability Index 13 Attributes of Net Present Value 13 Perpetuity 14 Real or Nominal Cash flows 14 Variables in E&P projects 15 Decision stages in E&P project 15 Deterministic/Probabilistic 16 Expected Value Concept 16 Risk-Expected Monetary Value 16 Decision Trees 17 Limitations of decision trees: 17 Advantages of decision Tree Analysis 17 Mean or Variance 18 Discount Rate 18 Biases 19 Monte Carlo Simulation – Workflow 19 Choices under Uncertainty 20 Spider/Tornado diagramm 21 Risk / Uncertainty 21 Strategic Management, Portfolio Management, Programm Management, Project Management 22 Bayes Rule: 22 Sensitivity Analysis: 22 Measure of Profitability and Performance 23 Net Profit 23 Payout 23
Return on Investment 23 Define sunk costs and give an example. Rate acceleration example. The difference between Monte Carlo sampling and Latin Hypercube sampling. DROI Investment Decision indicators in PE: Internal Rate of Return IRR: Utility Theory: Poisson method: 25 Bow tie diagram 25 Multiple choice 25
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Revenue, Capex, Opex
Revenue: production profile, gas/oil price CAPEX: Are one-time costs occurring at the beginning of projects. They can be classified by purpose: exploration costs, appraisal costs, development costs. They can be classified by purchased items: facility costs, drilling costs, pipeline costs. OPEX: are necessary for day-to-day operations and occur periodically. They consist of feedstocks, utilities, maintenance of facilities, overheads, production costs (vs. lifting costs), evacuation costs, insurance costs.
Sunk costs: not considered in economics. Past costs which have been incurred and cannot be
recovered are called sunk costs.Costs that already arose in the past. The feature is that sunk costs cannot be affected in the present and future.
Opportunity Costs: considered in economics. The expected return foregone by bypassing of
other potential investment projects for a given capital is called opportunity costs. Are escaped incomes, that arise, if available opportunities for the utility of resources are not perceived.
Royalty, Tax, Ring fencing
Types of Petroleum Fiscal Regimes
Net Cash Flow=
Net Annual Revenue – Net Annual Expenditure
Concessionary system vs. Production Sharing contracts
Going Internation – Bidding Process
What is the wild cat success ratio? And what are the considered factors? Derive form past success rates Considered factors are: source, migration,timing, reservoir(k, poro), trap, seal P(wild)=p(trap)*P(…)…
Goodwill, Leases, Ringfencing
Volatility of Crude Oil
Volatility of Gas
Why: Oil price is most important factor for project profitability. Pet. Engineers use escalators (estimated inflation plus; due to long lifetime of fields) to estimate oil price. We always need 2 forecasts: naive and sophisticated forecast. The sophisticated forecast methode should possess higher predictive accuracy than the naive forecast. Which technique to use is dependant on the length of the period that is to be forecasted.
→ the earnings foregone investing in a certain project instead of investing it in an alternative investment (stocks or bonds )
Attributes of Net Present Value
Real or Nominal Cash flows
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