Euromoney Energy Training

Course Overview

This course explores the structure and mechanisms of production sharing contracts (PSC's) for upstream oil and gas projects. Studying the underlying processes and commercial drivers, participants will examine case studies to illustrate the economic structure of these complex agreements.

The PSC Economic course brings the theory to life, allowing course attendees to build and interpret their own PSC model based on a real life example.

• The history and evolution of production sharing contracts (PSC’s)
• The PSC flowchart, content and format
• Cost recovery
• Profit sharing
• Bonuses
• Sliding scale fiscal mechanisms
• Taxation
• Ring fences
• The economics of PSC’s
• Plus: Libya PSC economics workshop

Course Objectives

• Learn about the history, evolution & structure of PSC s
• Investigate cost recovery & profit sharing
• Examine fiscal mechanisms & ring fence calculations
• Identify taxation liability & allowances
• Construct a production sharing contract spreadsheet model
• Interpret model outputs to enhance investment decision making

Who Should Attend

• Production sharing partners
• Economists working in the industry
• Business development managers
• Lawyers involved in the industry
• Analysts working in the industry
• Auditors working in the industry

Day 1

An introduction to production sharing contracts and upstream economic analysis

• The history and evolution of production sharing contracts (PSC’s)
• The basic PSC, contractor and government relationship
• The PSC flowchart, content and format

The fundamentals of upstream economic analysis

• Discounted cashflow
• Discount rate, discount factor and discount method
• The cost of capital and the hurdle discount rate
• Capital budgeting techniques (NPV, IRR, DPIR, payback)
• Valuing an asset, making development & investment decisions
• Inflation, cost escalation, real versus nominal cash flows
• Managing risk

Cost recovery

• Cost recovery mechanism
• Recoverable costs
• Cost oil, cost gas and NGL’s
• Excess cost recovery
• Cost recovery calculation and examples

Case studies

Profit sharing

• The profit pool
• Profit sharing
• Profit gas and profit oil
• Profit sharing calculation and examples

Case studies

Day 2

Bonuses

• Signature & commerciality
• Production
• Cost recoverability
• Bonus calculation and examples

Sliding scale fiscal mechanisms

• Production rate
• Production volume
• R-Factor
• Step versus incremental methods
• Sliding scale calculations and examples

Taxation

• The basis of the taxation liability
• The CT ring fence
• Chargeable income
• Capital allowances
• Other allowances
• CT rates, losses and abandonment costs
• Liability and payment phasing
• Taxation calculations and examples

Case studies

Ring fences

• PSC ring fence
• Taxation ring fence
• Ring fence calculations and example

Case studies

The economics of PSC’s

• Contractor cash flow
• Government cash flow
• Comparison with royal and taxation systems

Case studies

Day 3

Production Sharing Contract Fiscal Modelling Workshop

• A PSC based case study modelling the fiscal terms in Microsoft Excel(TM)
• Understanding the PSC fiscal structure and algorithms
• Determining the field, economic and fiscal data and building the input decks
• Step by step construction of the PSC model
• Running the economic cases and evaluating the results
• Analysis of the sensitivities
• Electronic copy of model solution provided to delegates

Summary and closing remarks

• Tim James

  Tim James joined Beardall, Parry & Associates, a UK based petroleum reservoir consultancy, in January 2004 and is now a Principal Economist in the BP&A Department of FRL. During this time he has undertaken a range of economic evaluations across the Middle East, North and West Africa, Pakistan, India and NW Europe. He has also provided upstream economics and risk analysis training courses both in the UK and Norway.
  
  Tim trained and qualified as a Chartered Management Accountant and moved into the oil and gas industry with Premier Oil plc in 1995 working in both Pakistan and London. For the two years to the end of 2003 he worked as their UK Commercial Analyst in an analytical and management role covering a wide range of commercial activities including field valuations for development, acquisitions and disposals, asset management, gas contract management and the administration of the Sales and Marketing function.
  
  Prior to that, he was UK Finance Manager with responsibilities for the maintenance of economic models, management of budgets and half and full year financial reporting. Tim spent time in Premier's islamabad office where experience was gained in both financial and project accounting.

  Courses run by this instructor

  • An Introduction to Upstream Petroleum Economics & Risk Analysis - London
  • Production Sharing Contracts & Upstream Economic Analysis - Rio de Janeiro
  • Production Sharing Contracts & Upstream Economic Analysis - London
  • Production Sharing Contracts & Upstream Economic Analysis - Lagos
  • Upstream Tax & Royalty Fiscal System Modelling - London
  • Production Sharing Contracts & Upstream Economic Analysis - Singapore
  • Production Sharing Contracts & Upstream Economic Analysis - Baku
  • Production Sharing Contracts & Upstream Economic Analysis - Almaty

Interested in holding this course in-house? Please fill out your details and a member of our team will be in touch with more information.