training specialists to the upstream oil and gas industry

Risk Analysis, Prospect Evaluation and Exploration Economics

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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.

Course outline

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

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


Location Start Date End Date Cost Trainer Book
Upon request       Ian Tchacos Make enquiry

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"The instructor is very knowledgeable and clear in delivering the message."
- Imtenan Almubarak, King Abdullah Petroleum Studies & Research Centre, Saudi Arabia

Website: Studio Beam Ltd