Energy Institute (EI)

Valuation and Risk Analysis of Oil and Gas Assets


Valuation of upstream, midstream and downstream assets is an essential requirement of decision-making for the oil and gas industry. This course discusses the fundamental variables and issues associated with petroleum asset valuations and provide an appreciation of how to assess the key uncertainties involved. The course is pitched to appeal to professionals with a large range of technical and commercial backgrounds and varying levels of experience, seeking insight to the broad range of asset valuation techniques required across the industry. In addition, the course provides details of the micro-economic issues facing oil and gas asset operators. The course incorporates a sequence of short exercises and case studies to reinforce the tools and techniques discussed.

This course is designed for a multi-disciplined audience with diverse oil and gas, financial, petroleum economics, technical, strategic planning, risk management and operational backgrounds.

Course content addresses issues and skills relevant to professionals working within oil and gas companies, government agencies (national oil and gas companies and ministries) and the support and service sectors to the industry.

Day one:

Basic analysis and valuation techniques

  • The need for oil and gas asset valuations and petroleum economics
  • Project cash flow and income components
  • Distinguishing cash flow and other measures of profitability
  • Petroleum resources and reserves categories and their valuation
  • Discounting and time-value considerations
  • Forecasting field production profiles and decline mechanisms
  • Rates of return of investments
  • Pay-out times and break-even points
  • Profit to investment ratios
  • Capital budgeting techniques and yardsticks
  • Which oil and/or gas price forecasts should be used to value assets?

Day two:

Constructing asset valuation models

  • Valuing incremental investments
  • Inflation, buying power, money of the day and real values
  • Applying inflation indices
  • Upstream fiscal terms and agreement types
  • Production sharing and cost recovery
  • Funding criteria: the cost of capital
  • Hurdle rates of return and appropriate discount rates
  • Asset finance alternatives used by the oil and gas industry
  • Equity and debt cash flow analysis
  • Manipulating the present value formula, annuities and levelised costs
  • Sensitivity, scenario and simulation techniques
  • Probabilistic methodology and techniques for valuation and risk analysis
  • Components of Monte Carlo simulation models
  • Gross product worth and refining margins

Day three:

Dealing with uncertainty, hedges, options and portfolios

  • Valuations incorporating risk and opportunity analysis
  • Decision analysis, decision trees and flexibility
  • Sub-surface risk in oil and gas fields
  • Above-ground uncertainties impacting oil and gas assets
  • Risked valuation of a farm-out opportunity using a decision tree
  • Valuing a deepwater oil and gas field development
  • Hedging oil and/or gas price: evaluation of paper instruments
  • Real options and complex decision analysis techniques
  • Investment analysts’ perspectives of oil and gas company values
  • Extrapolation of balance sheet metrics to estimate oil company values
  • Valuation and risk analysis software suitable for oil and gas assets
  • Risked valuation and optimisation of petroleum asset portfolios
  • Diversification as a risk reduction tool

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