Upstream Petroleum Economics, Risk and Fiscal Analysis

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Upcoming Course

Code Start Date End Date Location Cost Instructor Register
PST0193-201701  05 Dec 2017  07 Dec 2017  Kuala Lumpur, Malaysia  USD 2895  Guy Allinson   Register

Past Course

Code Start Date End Date Location Cost Instructor Register
        Aaron A. Zick, Ph.D. 
PST0193  31 Oct 2012  02 Nov 2012  Kuala Lumpur, Malaysia  SGD 3995  Guy Allinson 
PST0193  27 Nov 2013  29 Nov 2013  Kuala Lumpur, Malaysia  SGD 3995  Guy Allinson 
PST0193  18 Nov 2014  20 Nov 2014  Kuala Lumpur, Malaysia  SGD 3995  Guy Allinson 
PST0193-201501  03 Nov 2015  05 Nov 2015  Kuala Lumpur, Malaysia  SGD 3995  Guy Allinson 
PST0193-201601  14 Dec 2016  16 Dec 2016  Kuala Lumpur, Malaysia  USD 2895  Guy Allinson 
Given the volatility in oil prices today, the economic evaluation of an upstream oil and gas investment is essential. Business decisions involving asset acquisitions, lease-buy assessments, exploration drilling options, oil and gas field development, equipment purchases, and fiscal negotiations all require detailed economic analysis.
Our Upstream Petroleum Economics, Risk & Fiscal Analysis course provides participants with a
complete understanding of the use of the techniques of economic analysis and risk analysis
as currently practiced in the oil & gas industry.
This course covers cash flow analysis, deriving and understanding economic indicators and
detailed probability and fiscal analysis. These are vital components of the evaluation of
investments in today’s international upstream oil & gas industry.
Participants will receive a thorough understanding of the context of economic analysis as well
as practical instruction and an appreciation of the analytical techniques used. Participants will
be engaged in exercises and examples to reinforce their understanding of the concepts learnt.
Aims and scope
• Cash flow analysis
• Economic indicators
• Economic Evaluation Examples
• Risk analysis
• Fiscal system and PSC analysis
• Worldwide fiscal terms
Net Cash Flow
Discussion of the main components and relative importance of components of cash flow for oil and gas investments (production, price, revenue, operating costs, capital costs, abandonment costs and fiscal costs). Oil and gas price forecasts and the treatment of price forecasts in net cash flow analysis.
[EXERCISE]: Delegates’ exercise in preparing a net cash flow projection.
Economic Life and Reserves
How net cash flow projections are critical in determining economic life and reserves. The effects of oil price, costs and fiscal terms on reserves estimates.
[EXERCISE]: Delegates’ exercise in determining economic life and estimating reserves.
Distinction between Cash Flow and Profit
How cash flow is distinguished from profit. The role of depreciation. When we use cash flow and when we use profit.
Cash Flow and Tax
How tax is incorporated into cash flow projections. The basic rules for calculating tax worldwide. The effect of tax on field development decisions. Loss carry forward and the effect of different petroleum tax regimes.
[EXERCISE]: Delegates’ exercises in calculating tax and demonstrating the effects of different tax regimes.
Cash Flow and Production Sharing Contracts (PSC)
The basic economic distinction between tax regimes and production sharing contract regimes. How to make cash flow projections for production sharing systems worldwide. Cost recovery and profit sharing arrangements.
[EXERCISE]: Delegates’ exercises in cash flow analysis with different PSC terms.
Sunk Costs
The treatment and mistreatment of sunk costs in cash flow analyses and petroleum property acquisitions. Discussions of the effects of sunk costs.
Incorporating Inflflation into Cash Flow Projections.
How to inflate the components of cash flows. The conventions and the jargon.
[EXERCISE]: Delegates’ exercise in generating cash flow incorporating inflation.
Real and Nominal Cash Flows
The distinction between real and nominal cash flows. Fiscal drag and the problems associated with taking short cuts to derive real cash flows. Common misunderstandings in the use of real cash flows.
[EXERCISE]: Delegates’ exercise in preparing real and nominal net cash flows.
Coverage of the main depreciation methods used in fiscal terms worldwide.
[EXERCISE]: Delegates’ exercise in preparing depreciation schedules
The need to measure net cash flow projections with single indicators. The indicators used in the oil and gas industry.
The importance of time.
Net Present Value (NPV)
The time value of money. Compounding and discounting. Using a discount factor table and measuring the effect of time and discount rate. Discounting a cash flow projection and calculating NPV. Understanding the meaning, uses and features of NPV. Valuing petroleum properties using NPV. Preliminary discussion of choosing discount rates
[EXERCISE]: Delegates’ exercises in calculating NPV and demonstrating its features.
Real and Nominal NPVs
The distinction between deflating and discounting and between real and nominal discount rates and NPVs. Dealing with the pitfalls of using real NPVs.
[EXERCISE]: Delegates’ exercises in calculating real and nominal NPVs.
Internal Rate of Return (IRR)
The definition and application of IRR. Calculating the IRR.
[EXERCISE]: Delegates’ exercises in calculating IRR.
Problems with IRR
Multiple IRRs – when, how often and how they arise. How the NPV and IRR measures can give conflicting results and how to resolve this. The effect of project delays and the use of IRR.
[EXERCISE]: Delegates’ exercises in calculating multiple IRRs and seeing how they arise and how to interpret them.
Calculation and use of payback and discounted payback indicators. The use of discounted payback in petroleum fiscal regimes. Problems with payback.How compound payback is used in some fiscal regimes
[EXERCISE]: Delegates’ exercises in calculating simple and compound payback for tax.
Capital Productivity Index (CPI).
Calculation and use of CPI. The use of CPI in oil companies and petroleum fiscal regimes. Capital rationing. Problems with CPI.
[EXERCISE]: Delegates exercises in calculating CPIs and their application in some PSCs
Accelerated production example.
[EXERCISE]: Delegates’ exercise in incremental economics and the effects of fiscal terms.
Optimising field development and determining reserves.
[EXERCISE]: Delegates’ exercise in optimising field development and assessing reserves.
Lease-buy decision example.
[EXERCISE]: Delegates’ exercise in lease-buy economics and the effects of fiscal terms.
Sensitivity Analysis
Analysing the sensitivity of investment decisions to variations in input parameters. Interpreting sensitivity diagrams. The pitfalls in using sensitivity analyses for oil industry investment decisions.
[EXERCISE]: Delegates’ exercise in preparing sensitivity analyses and using them for investment decisions.
Probability Analysis
Defining and using probability distributions. Means, standard deviations, levels of confidence. Industry standard reserves definitions and classifications.
[EXERCISE]: Delegates’ exercise in preparing probability analysis.
Using Probability in the oil and gas industry
Making estimates under uncertainty in the petroleum industry. Combining uncertain variables and issues with adding reserves, adding costs and analysing economics.
[EXERCISE]: Delegates’ exercises in combining uncertain oil industry variables.
Monte Carlo Simulation
The mechanics of Monte Carlo simulation. Choosing probability distributions. The pitfalls of Monte Carlo simulation and how to avoid them. Reserves estimation using Monte Carlo simulation. Investment decisions using Monte Carlo simulation.
[EXERCISE] : Delegates’ exercises in deriving and using probability distributions of oil in place, NPV and reserves using spreadsheet Monte Carlo simulation.
Exploration decisions
The definition, meaning and examples economics for oil and gas exploration drilling decisions. Expected value (EV) versus probability of success lines. Using EV to compare drilling and farmout decisions. The effects if fiscal terms and common problems with using EV. Choosing probabilities of success. Valuing properties using EV.
[EXERCISE]: Delegates’ exercises in the economics of drilling, farming out acreage and the effects of fiscal terms.
Analysis of example PSCs and fiscal terms in the Asia-Pacific region. Evaluating the severity of fiscal terms. How the fiscal components work. How certain fiscal terms can distort oil and gas project investment decisions. How to avoid potential investment distortion in the design or negotiation of fiscal terms. Examples for Indonesia, Malaysia, Thailand, Vietnam and Australia.
[EXERCISE]: Delegates’ exercises in showing the structure and dynamics of example fiscal regimes in SE Asia.
The economic comparison of fiscal terms across the world - severity and efficiency.
The above is a guide to the topics covered during the course and the approximate timing of the topic. The presenter reserves the right to make modifications to these depending on the delegates’ background and experience and the progress of the course.”
  • GAIN a thorough understanding of oil & gas economic evaluations
  • UNDERSTAND and APPLY economic indicators to assess oil & gas industry projects
  • QUANTIFY and MANAGE uncertainty and risk
  • APPLY Monte Carlo Simulation and other statistical methods in risk analysis to exploration and production investments effectively
  • UNDERSTAND, EVALUATE and model both fiscal and production sharing contract (PSC) terms

This course is designed for E&P professionals with a need for detailed understanding of the
upstream petroleum economics, including:

  • Geoscientists
  • Reservoir Engineers
  • Production Engineers
  • Petroleum Engineers
  • Planning and Development Analysts/Executives
  • Commercial Analysts/Executive/Managers
  • Business Planners/Analysts/Executives/Managers
  • Production Sharing Executives/Managers
  • Project Executives/Manager
  • Petroleum Economists
  • General Managers
  • Finance and Account Executive/Managers

Aaron A. Zick, Ph.D.

Founder and President


President, Zick Technologies (Since 10/93).

Petroleum engineering consulting and software development, specializing in the area of reservoir fluid phase behavior modeling. References available on request. Key achievements:

-Developed numerous equation-of-state and black-oil fluid characterizations for various major oil companies and as a sub-contractor for Pera A/S.

-Recommended phase behavior experimentation and modeling guidelines for several major oil companies.

-Wrote PhazeComp, a new, state-of-the-art program from Zick Technologies for equation-of-state phase behavior modeling, reservoir fluid characterization, and the robust, efficient calculation of minimum miscibility conditions.

-Wrote Streamz, unique Petrostreamz A/S software for translating, manipulating, and managing vast quantities of fluid stream information.

-Designed and helped write Pipe-It, unique Petrostreamz A/S software for managing and manipulating petroleum resources, processes, and projects.

-Taught numerous industry courses on phase behavior, equations of state, reservoir fluid characterization, and miscible gas injection processes.

-Designed and helped implement a new set of equation-of-state routines for the in-house reservoir simulator of a major oil company.

-Advised the architects of a major commercial reservoir simulator on ways to significantly improve their equation-of-state routines.


Director of Research, Reservoir Simulation Research Corporation (6/91–10/93).

Responsible for the research and development of more efficient, accurate, and reliable techniques for modeling reservoir fluid phase behavior within MORE® (a fully-compositional, equation-of-state reservoir simulator). Also responsible for improving three-dimensional visualization of reservoir simulator output, and for occasional consulting work. Key achievements:

-Designed and implemented new equation-of-state solution algorithms for MORE®, improving both efficiency and robustness while using less memory.

-Developed a powerful and flexible interface between MORE® and TECPLOT™ (three-dimensional surface contouring software from AMTEC Engineering).


Senior Principal Research Engineer, ARCO Oil and Gas Company (9/83–5/91).

Developed expertise in reservoir fluid phase behavior, phase behavior modeling, compositional reservoir simulation, and relative permeability modeling.  Designed and analyzed PVT experiments. Created equation-of-state reservoir fluid characterizations. Developed ARCO’s phase behavior modeling software and relative permeability modeling software. Helped develop several of ARCO’s compositional and limited compositional reservoir simulators. Key achievements:

-Discovered the true, condensing/vaporizing mechanism of oil displace­ment by enriched hydrocarbon gases.

-Represented ARCO on the Prudhoe Bay co-owners’ Enhanced Oil Recovery Task Force for the Prudhoe Bay Miscible Gas Project.

-Designed and analyzed most of the PVT and slim-tube experiments for the Prudhoe Bay Miscible Gas Project.

-Created the equation-of-state reservoir fluid characterization adopted by the operating companies for the Prudhoe Bay Miscible Gas Project.

-Developed the miscibility pressure correlations used by the facility operators for the Prudhoe Bay Miscible Gas Project.

-Developed EOSPHASE, a then state-of-the-art program for equation-of-state phase behavior modeling, reservoir fluid characterization, and the robust, efficient calculation of minimum miscibility conditions.

-Developed SLIMTUBE, a special-purpose, equation-of-state simulator for slim-tube displacements.

-Developed new, compositionally-consistent, three-phase relative perme­ability models for ARCO’s compositional simulators and wrote data-fitting software for those models.

-Developed the phase behavior and relative permeability routines for a new, limited compositional reservoir simulator and assisted on other aspects of it.

-Continually added improvements to various in-house reservoir simulators.

-Regularly taught in-house courses on the phase behavior of miscible gas displacement processes.



A. A. Zick, “A Combined Condensing/Vaporizing Mechanism in the Displacement of Oil by Enriched Gases,” presented at the 61st Annual Technical Conference and Exhibition of the Society of Petroleum Engineers, New Orleans, LA (October, 1986).

D. E. Tang and A. A. Zick, “A New Limited Compositional Reservoir Simulator,” presented at the 12th SPE Symposium on Reservoir Simulation, New Orleans, LA (March, 1993).