Mr. Kaase Gbaakon (NNPC)

This course will highlight the importance of project economics in arriving at investment decisions by introducing concepts such as Discounted Cash Flow, and Project Valuation analysis. These are required to perform economic evaluations and derive indicators which are the basis for those decisions in the oil industry. The course will be flavoured to enable a firm grasp of the essential parameters that drive economic viability of downstream projects while identifying and quantifying the project uncertainties so as to enable the development of risk mitigating strategies. View video intro

  1. Economic Indicators

INTRODUCTION: This outlines the key terminologies and reviews the generic issues of micro-economic analysis applicable to all sectors of the oil and gas supply chain.

OBJECTIVE: To introduce the concepts required to carry out economic evaluations and derive indicators which are the basis for investment decisions in the oil industry

  • Why project economics is required to make investment decisions
  • Distinguishing cash flow from income and profit
  • Sources of revenue and cost
  • Treatment of capital expenditures (CapEx)
  • Depreciation methods and their objectives
  • Tax and Book DepreciationImage result for register now
  • Key information derived from financial statement
  • Operating expenditures (OpEx) and their fixed, variable and marginal components
  • Discounting and time-value considerations (Discounted Cash Flow Analysis &NCF)
  • Manipulating the present value and future value formula
  • Inflation, real and nominal (money-of-the-day) values
  • Weighted-average cost of capital (WACC) and discount rates
  • Valuing incremental investments
  • Economic indicators and yardsticks used to rank asset values (NPV, IRR, MIRR etc.)
  • Hurdle and minimum acceptable rates of return
  • Project lifecycles, optimum economic life and multi-year cash flows
  1. Economics of Downstream

INTRODUCTION: Downstream petroleum project economics require different approaches to the upstream sector. Tariffs, margins, long-term contracts and market demand forecasts often determine the economic viability in these sectors.

OBJECTIVE: To enable the understanding of investment economics and grasp the essential parameters that drive economic viability of downstream projects

  • Oil and gas transportation options (Pipeline, Shipping, Trucking and Rail) and their economics
  • Pipeline and facility tariffs: levelised, incremental and rolled-in options
  • Rate building methodologies to establish facility tariffs
  • Downstream Gas Economics (Processing and Marketing)
  • Technical Overview of Refining
  • Crude Oil and Petroleum Product Pricing: Benchmark, Quality Differentials, Net backs
  • Gross product worth (GPW) of refined products and crack spreads
  • Cost and revenue components associated with refineries
  • World Petroleum Product Demand
  • Refining Supply: overcapacity, types and quantity
  • Gross, semi-variable, and net refinery margins and net cash values
  • Petroleum product distribution logistics and economics
  • Retail fuel margins
  • Significance of non-fuel and convenience store revenues in retail fuel site economics
  • Case Study on Investment Profitability (Refinery Project)
  • Downstream Gas Utilization : Gas Based Industries, Power

 

  1. Sensitivities and Risk Analysis

INTRODUCTION: Techniques that recognize that many potential economic outcomes are possible for each asset depending upon technical, commercial and fiscal uncertainties are widely used in the petroleum industry. This module describes the most common techniques.

PURPOSE: To introduce the concept of uncertainty quantification in project viability and valuation so as to enable the development of risk mitigating strategies

  • Deterministic versus probabilistic methodologies
  • Establishing ranges and cases to test base case assumptions
  • Spider diagrams and tornado charts
  • Decision trees: static and dynamic models
  • Representing distributions in cumulative frequency terms
  • Monte Carlo simulation techniques
  • Statistical analysis and interpretation of simulation results
  • The importance of graphics in presenting simulation results