Risk Analysis, Prospect Evaluation and Exploration Economics

An In-Person Training Course by Esanda.


    In-House sessions are available upon request.

    Course Overview:

    Oil and gas exploration is a high risk, high cost and high reward industry. Investment analysis has become more complex and more critical for corporate success with the high volatility in energy markets as well as an increased number of exploration and development projects in challenging technical, political and operating environments. The recognition and quantification of uncertainty, risk and economic value are fundamentally important skills for oil and gas professionals and decision makers. This course is designed to provide industry professionals with suitable training to understand and apply the tools and methods of identifying, quantifying and managing risks and uncertainties involved with prospect evaluation, resource assessment, portfolio management and exploration project valuation.

    Those working on exploration, appraisal and development projects will find it highly relevant to attend this course.


    The Course Is Designed For:

    • Geologists
    • Geophysicists
    • Drilling engineers
    • Production engineers
    • Reservoir engineers
    • Exploration managers and team leaders
    • Commercial managers or land men
    • Business development managers
    • Personnel involved in assessing the value and viability of exploration projects
    • Other personnel, including non-technical, that need to improve their understanding of risk analysis, prospect evaluation and petroleum economics


    Learning Objectives:

    The objective of this course is to provide participants with the necessary skills to apply the methods of risk analysis, prospect evaluation and exploration economics. These skills combined with the appropriate decision analysis techniques will provide participants with knowledge and tools to evaluate and rank exploration prospects, undertake exploration basin analysis and manage exploration portfolio’s to maximize long term value and align with strategic organizational goals.

    The program will include a review of probability and statistics fundamentals necessary for the risking of prospects, the development of reserves distributions and commonly used probabilistic estimation skills. Participants will also cover more advanced risk based estimation techniques such as Monte Carlo analysis as well as commonly used probabilistic software. The calculation and use of expected monetary value (EMV) which is commonly used in evaluating and ranking exploration and appraisal projects will be covered in detail. Participants will also be introduced to decision analysis techniques used in oil and gas, value of information and portfolio management fundamentals.

    The program will focus on enabling participants to understand and apply the tools and methods of identifying, quantifying and managing risks and uncertainties involved with prospect evaluation, resource assessment and project execution through the exploration, development and production life cycle. Mastering these concepts and the learning of the methods of analysing and making risk based decisions is expected to result in improved evaluation and management of exploration projects.

    The program will include cash flow model development, extensive calculation exercises, sensitivity analysis and group breakout sessions designed to generate participant interaction, develop competence and confidence. Modelling will include fiscal terms and commonly used taxation regimes such as production sharing contracts and profit based royalty regimes used in the oil and gas industry . Participants will gain an appreciation of the effect of fiscal terms on project value and risk.

    The discussion of economics will include an in depth review of key physical project assumptions including reserves, production rate, capital costs, operating costs and project schedule. In addition to project assumptions the course will include an introduction to financial markets and commodity markets to develop an appreciation of the external influences affecting exploration and production projects. This discussion will include current trends and likely ranges for commodity pricing, inflation and international exchange rates.

    In addition to theoretical analysis techniques participants will review case studies to appreciate important risk management techniques to mitigate exploration risks, manage costs and reduce the time frames of the exploration investment cycle. This course will also enable course participants to appreciate the likely operational risks, the uncertainty of reserves estimation and the potential vulnerability of development projects that determine the commercial success or failure of a project. The understanding of these concepts and the learning of the methods of analysing and making risk based decisions is expected to result in improved management of exploration projects.

    The decision analysis module will include fundamentals of decision analysis, decision trees, sensitivity analysis and simulation, value of information, real option valuation, prospect evaluation and portfolio evaluation. Participants will also review and analyse the effects of commonly used commercial constructs used in exploration portfolio management such as joint ventures, acreage swaps and farm outs.

    Participants will also discuss the importance of developing in house teams which are capable of competently evaluating exploration projects and portfolios as well as the presentation of exploration project assessments and economics to enable consistent, informed decision making within their organisation.

    The course will also include many relevant case studies illustrating the attributes of both successful and unsuccessful exploration projects and programs. All topics will be complemented with in-class examples, case studies and breakout sessions.


    Your Instructor:

    IanIan Tchacos

    Ian Tchacos is an oil and gas professional with over 30 years’ international experience in corporate development and strategy, mergers and acquisitions, petroleum exploration, development and production operations, decision analysis, commercial negotiation, oil and gas marketing and energy finance.

    Ian has a proven management track record in a range of international energy company environments.

    As Managing Director of Nexus Energy Ian was responsible for this company’s development from an onshore micro cap explorer to an ASX top 200 offshore producer and operator. Ian has had extensive experience in project formation and development in both onshore and offshore environments. He has developed a particular interest in domestic gas and LNG project commercialisation.

    Ian holds a batchelor of Mechanical Engineering and a graduate diploma in Chemical Engineering commencing his professional career as petroleum engineer with significant practical experience in oil and gas developments and exploration. Following a strong technical grounding Ian progressed to a series of commercial roles gaining experience in project commercialisation, marketing, business development, corporate strategy and finance.

    Ian is currently Non Executive Chairman of an ASX listed company, Executive Chairman of a non listed Energy company and provides strategic, technical and finance advice to a number of other companies.

    Ian also provides oil and gas related professional training on the subjects of economics, investment analysis, commercial negotiation and strategy.


    Course Outline:

    Introduction and Petroleum Industry Trends
    Participant introduction and discussion of course objectives
    Financial, commodity markets and macro economics
    Review of recent industry pricing (oil and gas) and cost trends
    Industry health, safety, environment and community trends
    Political and social trends affecting the industry
    Important technical innovations influencing exploration project economics

    Economic Evaluation
    Cash flow model development
    Discounted cash flow concepts and NPV calculation
    Cost of Capital Estimation utilising the capital asset pricing model
    Internal Rate of Return and key project performance measures.
    Expected monetary value and risk cover concepts
    Profit Investment Ratio
    Introduction to commonly encountered fiscal and tax regimes
    Incorporating fiscal terms and tax into economic models
    Development of post tax valuations

    Risk and Uncertainty Concepts
    Understanding probability and statistics as well as uncertainty concepts
    Appropriate use of probability distributions
    Developing key probabilistic estimation skills

    – Probabilistic reserves and resource estimation techniques
    – Probabilistic cost estimation
    – Estimating with uncertainty
    – Estimating cost of capital for projects

    Risk Management
    Risk and uncertainty management principles
    Risk assessment and mitigation
    Financial Risk Analysis
    Incorporating risk management in decision making

    Decision Analysis for Petroleum Exploration
    Fundamentals of decision analysis
    Decision trees, sensitivity analysis and simulation
    Monte Carlo simulation
    Value of information
    Real option valuation
    Application of Bayes’ theorem

    Decision Analysis Implementation – Oil and Gas Project Evaluation
    Concept selection, planning and implementation
    Resource estimation
    Cost estimating techniques
    Commodity pricing and off take variability
    Political, HSE, labor and stake holder considerations
    Project vulnerability analysis

    Prospect risk analysis and valuation
    Probability of prospect success
    Historical versus actual success rates
    Geological components of prospect success
    Geological, economic and economic chance of success
    Independent versus dependent chance factors
    Monitoring and improving predictive performance
    Prospect evaluation using EMV

    Play analysis and assessment
    Key geological concepts for play analysis
    Concepts and techniques for risking exploration plays
    Probability of play success
    Geotechnical data requirements
    Systematic analysis of plays

    Exploration portfolio valuation and management
    Valuation of exploration ventures using option pricing theory
    Risk and risk aversion in exploration
    Performance of exploration portfolios
    Exploration portfolio management
    Matching play and portfolio attributes to business strategies
    Assessment of exploration performance and finding costs
    Methods for acquiring petroleum rights
    Joint ventures, acreage swaps and farm outs

    Course Curriculum

    Risk Analysis, Prospect Evaluation and Exploration Economics 1 day, 11 hours

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    Esanda is an independent upstream oil and gas consultancy specialising in industry specific training and field development planning services. Our operations are supported by our UK and Australia offices. Our training providers are practicing industry specialists who develop our in house courses and work with clients to build bespoke training for their staff.We pride ourselves on being able to bring hundreds of man years of experience to the training sector and the positive feedback we receive from our satisfied clients.
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