Engineers, geoscientists and economists perform technical work to support the "business" objectives of the organisation they work for (corporation, government). It is therefore important that they understand that "business" because it will influence the judgements they make. Economic evaluations provide the main source of the organisation's information by which investment and operational decisions are made regarding the most effective use of resources. It is through these decisions corporate value is being created (or destroyed).
There are many subtleties and assumptions that underlie the apparently straight-forward economic calculations that are often seen. Consequently, a fundamental understanding of the concepts behind economic evaluation and of techniques for performing them within a corporate decision making context, are essential skills. Furthermore, as all investment decisions are made without knowing what the future holds, understanding the uncertainties we face in any given decision situation is essential for good decision-making.
This course provides the tools necessary for engineers to economically evaluate their uncertainties and decisions. It also allows engineers and geoscientists to communicate with the “business” world, which is generally more interested in monetary values and their risks, than engineering tolerances and specifications. It also provides understanding and knowledge of economic and business concepts, time-value of money, discounted cash flow, cash-flows, net present value and other economic decision criteria, the decision-making process, multi-objective decision making, decision-tree analysis, and value-of-information & flexibility. Some of the psychological and judgmental aspects of how people respond to uncertain and complex decision situations will be discussed.
Course Level: Skill
Instructor: Reidar Bratvold
Designed for you, if you are...
- A surface or sub-surface technologist (engineer of any discipline, geoscientist, geophysicist and petrophysicist) who directly or indirectly contributes information or data to economic evaluations and decisions
How we build your confidence
- The course combines lectures, group work, and individual exercises
- A number of examples and practical decision problems will be addressed - both in the lectures as well as in the practice sessions
- Microsoft Excel with add-ons for decision tree and Monte Carlo simulation will be used for many of the examples and exercises
In addition to the course manual participants will receive a copy of the textbook 'Making Good Decisions'. This book provides essential reading for both technical professionals and managers.
The benefits from attending
By the end of the course you will feel confident in your understanding of:
- The principles underlying the economic evaluation of projects large and small - from the economics of a fracture stimulation, through side-tracking a well, to major field development decisions
- How to develop cashflow models that are typical for oil & gas valuations
- Tax regimes and the impact of discounting
- The impact of uncertainties in the data that goes into economic calculations, and how risk is dealt with
- The use of decision analysis as a method to deal with the complexity and uncertainty involved in many real-world decisions
- The value of information concepts and their application to the E&P setting
- Context and purpose of economic evaluation
- Developing Net Cash Flow (NCF) estimates
- Revenue and expense (capital and operating) streams
- Depletion, depreciation and abandonment provisions
- Taxes, royalties and production sharing contracts
- Discounted cash flow analysis: time value of money and discount rates
- Value and investment metrics: net present value, rate-of-return, return-on-investment, investment efficiency, hurdle rates
- Incremental vs. acceleration projects
- Strengths and weaknesses of DCF and NPV
- Sources of uncertainty and accounting for risk
Customer Feedback"Practical & well-rounded intro to Decision Making." - Field Development Engineer at INPEX
"Excellent coverage of appropriate content, excellent resource material (slide book & text), excellent instructor." - Geophysicist at Wintershall
"Very clear, accessible and engaging. Pitched at a good level for geoscientists." - Geoscientist at Ophir Energy
"The instructor is very knowledgeable, exercises are helpful and well designed." - Reservoir Engineer at Qatar Petroleum
"Very good and easy to follow presenter and presentations, very interactive." - Engineer at RWE Dea