Master Class: Advanced Strategies in Oil & Gas Finance & Accounting

This five-day course will give participants expertise to assist in achieving long-term success to enhance your company’s competitive performance.

  • Course Instructor

    Betty is the Williams Companies Professor of Business and a Professor of Finance in the Department of Finance at Oklahoma State University’s Spears School of Business. She received her Ph.D. from Case Western Reserve University and also has an MBA and B.S in Chemical Engineering.


Key elements of the course:

  • Foundation Topics in Oil and Gas
  • The Energy Renaissance and Impact on the Global Energy Outlook and Competitive Landscape
  • Key Issues in Oil and Gas Finance and Accounting
  • Analysing Petroleum Companies Financial Statements and Competitive Benchmarking
  • Best Practices in Advanced Capital Budgeting and Risk Analysis in the Oil and Gas Industry
  • Derivatives and Energy Risk Management
  • Best Practices in Valuation of Mergers and Acquisitions in the Energy Industry
  • Case Studies in all Topics Covered for both upstream and downstream
  • Strategies to Maximise Value in the Global Oil and Gas Value Chain
  • Receive a copy of the new book: Energy Finance and Economics: Analysis and Valuation, Risk Management and the future of Energy - edited and coauthored by the course instructor

Course overview

Finance and accounting are two of the core management functions in all organisations. The maximisation of financial resources is a key factor for success. However, in the challenging oil and gas industry, the rapid changes in geopolitics and economic conditions have brought forth many more risk factors in the competitive landscape. These factors have caused the industry to be one of the world’s most challenging and complex business environments.

There is a need for risk identification and financial management to be grounded in timely, accurate forecasts and performance data. It is crucial that leaders in the oil and gas industry be equipped with wide-ranging knowledge in finance and accounting to achieve strategic planning and decisionmaking. This five-day course will give participants expertise to assist in achieving long-term success to enhance your company’s competitive performance.

Methodology

The course is taught in a highly interactive manner with an emphasis on participant questions and inquiry. The course instructor offers considerable flexibility in exploring some topics further than planned, while de-emphasising other topics if the group prefers.

Practical applications and minicases are frequently used along with participant exercises. All delegates will have the option to receive a copy of Energy Finance and Economics: Analysis and Valuation, Risk Management, and the Future of Energy (forthcoming in 2012, published by Wiley), edited and coauthored by the course instructor.

Who should attend?

This course will provide value to personnel from the following areas:

  • Finance Managers and Directors
  • Finance Controllers
  • Accounting Managers and Auditors
  • Finance and Business Analysts
  • Staff Finance and Accounting Professionals in a Leadership Role
  • Technical Professionals in the Finance Function
  • Business Development
  • Key Personnel in the Oil and Gas Industry
  • Bankers and Professionals who work in Energy Lending 

Day 1

Budgeting and Forecasting Strategies in the Oil and Gas Industry

Session 1: Laying the foundation - Global energy outlook, supply and demand balance brought about by a rapidly changing world

  • Setting the stage for finance and accounting strategies for oil and gas companies
  • Changing technology and the role of shale oil and gas plays
  • The U.S. energy renaissance and implications for global competitiveness
  • Global energy outlook
  • Energy supply and demand issues
  • Current views on energy price projects
  • Human capital shortages, unproven technology, and unknown geology
  • Future trends of oil and gas

Session 2: How oil and gas companies differ from other industries and key issues in oil and gas accounting and finance

To understand the financial prospects of an oil and gas company, one must understand how they differ from other industries and key issues related to reporting.

  • Special accounting treatment for Oil and Gas companies
  • Analysing the different accounting methods and financial statements
  • Determining the proper classification of oil and gas costs: capitalise, expense, exploration costs, development costs, production costs
  • Revenue recognition: when is it revenue and when it is not?
  • Fair value and industry accounting issues

Session 3: Observing the role of International Accounting Standards (IAS) and future issues as they apply to Oil and Gas companies

  • Overview of critical issues related to international petroleum accounting
  • Observing the role of International Accounting Standards (IAS) in the future of financial statements for oil and gas companies
    • Where they came from
    • What does it mean to companies now and in the future
  • Value chain and significant IAS accounting issues
  • Upstream Oil and Gas specific differences between IAS and U.S. GAAP

Session 4: Analysis of international oil companies financial statements – Part 1

This two-part session will continue with topics covered in the prior session on IAS by applying them to financial statement analysis. Delegates will learn 10 important factors in reading and analysing the financial statements of international oil companies. The main focus will be on learning how to analyse the company’s success in exploring and producing oil and gas reserves and understanding the concept of competitive benchmarking of the company against other energy companies. This session is helpful in gaining knowledge as a business professional working in the energy industry, a potential investor or lender in the oil and gas industry and an individual seeking employment in this industry. Delegates will analyse the financial statements of a leading international oil company.

Topics covered include:

  • Energy ratios specific to oil and gas companies
  • Reading oil and gas reserve disclosures
  • Analysing production replacement and reserve replacement
  • Analysing finding costs and reserve replacement costs
  • Reserve life index
  • Key profitability indicators

Day 2

Optimising Budget Models and Capital Investment Analysis

Session 1: Analysis of international oil companies financial statements – Part 2

The second part of this two-part session will continue with topics covered in the first part. Delegates will analyse the financial statements of leading international oil companies.

  • Case studies and Excel applications
  • Bloomberg applications

Session 2: Competitive benchmarking

This session will cover the critical topic of competitive benchmarking. When companies compare themselves to their peers, they usually have a number of the following significant advantages over outsiders:

  • They thoroughly understand the industry or sector
  • They often have employees that have recently transferred from the peer companies. (This provides them an inside look at costs, wages, management, special problems, and a host of other perspectives – this information is difficult to obtain for individual investors)
  • If a competitor produces a product, the benchmarking companies often have the engineering wherewithal to reverse engineer, test, and thoroughly understand what the competition has, has done, or is doing 

Session 3: Capital budgeting and risk analysis in the Oil and Gas industry

Valuation of Oil and Gas assets is a critical and challenging process. The uncertainty of production, prices, capital costs and construction delays, among other factors, makes it difficult to value projects. In this session, leading analytical skills and techniques used in Excel will be discussed and illustrated using real case studies on financial forecasting and analysis.

  • Recap of traditional capital budgeting methods
    • Net Present Value (NPV), Internal Rate of Return (IRR), modified IRR, payback period and discounted payback period
  • Advanced analytical skills, techniques, and challenges in oil and gas capital budgeting including:
    • Oil and gas production, oil and gas prices, cost of capital, construction costs, and startup delay

Session 4: Case study applications and open discussion of crucial issues

Attendees will analyse case studies of actual international firms operating in the oil and gas industry to further explore issues covered in the sessions covered today. Attendees will also have the opportunity to discuss crucial issues facing them with delegates in attendance. Open discussion will follow with suggestions and recommendations. This is an excellent opportunity to interact in a stimulating group setting with other participants.

Day 3

Advanced Capital Budgeting and Risk Analysis and Expert Issues about Derivatives and Risk Management in the Oil and Gas Industry

Session 1: Advanced capital budgeting and risk analysis in the Oil and Gas industry

Would you like to master financial forecasting and analysis? If so, this session is a “must” in gaining the cutting-edge skills necessary for sophisticated financial analysis and modelling of oil and gas projects. In this session, Monte Carlo simulation will be used to model uncertainty for key value drivers of large oil and gas projects. Monte Carlo simulation is a powerful tool that can help evaluate what can happen to an investment’s future cash flows and summarise the possibilities in a probability distribution. This is particularly helpful in oil and gas project analysis since the outcomes from large investment projects are often the result of the interaction of a number of interrelated factors (or value drivers) that are highly uncertain.

  • Risk analysis of oil and gas projects using Excel
    • Sensitivity analysis, sensitivity charts, and scenario analysis
  • Advanced risk analysis using Monte Carlo simulation
    • Distribution fitting and correlation assumptions
    • 5 basic rules of thumb in choosing probability distributions
    • Three popular probability distributions for use in simulation models
    • Displaying and understanding output - Tornado Charts, etc
  • Modelling energy prices in capital budgeting risk analysis
    • Techniques and challenges in modelling energy prices
    • Modelling energy prices using mean reverting processes incorporating Poisson jumps
  • Case studies and Excel applications
  • Case study example: Zombie oil and gas wells once abandoned are now profitable again due to technological advances.

Session 2: Case study applications and open discussion of crucial issues related to advanced capital budgeting and risk analysis

Attendees will analyse case studies of actual international and Middle Eastern firms operating in the oil and gas industry to further explore issues covered in the sessions covered today. Attendees will also have the opportunity to discuss crucial issues facing them with delegates in attendance. Open discussion will follow with suggestions and recommendations. This is an excellent opportunity
to interact in a stimulating group setting with other participants. Attendees will also analyse an oil and gas investment project from the banker's viewpoint, to help determine potential financing from financial institutions for projects being considered.

Session 3: Current issues about derivatives and risk management in the Oil and Gas industry

Oil and gas companies are facing many financial risks currently and risk management is a critical issue for these firms. Risk management encompasses the identification and assessment of the risks that materially affect company value and enterprise risk management addresses the
implementation of a company-wide strategy to manage those risks.

In this session, participants will learn about the following topics:

  • What do we mean by risk management and why do firms manage risks?
  • How hedging can increase firm value
  • Introduction to terminology and instruments used in the energy derivatives markets
  • Energy price volatility, types of derivative markets
  • Lessons from hedging mistakes: Recent hedging disasters

Session 4: Advanced topics in hedging and risk management

Do you need more knowledge or want to learn more about derivatives and hedging in this complex industry? If the answer is yes, this session is a must for you. In this session, we pick up where we left off in the last session and cover more advanced topics related to risk management

Topics covered include:

  • Hedging, basis risk, and factors affecting basis
  • Petroleum and natural gas price risks and risk management strategies
  • Options (calls, puts, collars, floors, caps)
  • Energy swaps
  • Value-at-Risk (VAR) and Cashflow-at-Risk (CAR)
  • The Greeks (delta, vega, theta, rho, and gamma) and what they mean
  • Energy trading

Day 4

Advanced Topics in Valuation of Oil and Gas Companies

Session 1: Valuation of Oil and Gas companies using relative valuation using market comparables – Part 1

  • Introduction to relative valuation for oil and gas companies
  • Valuation of oil and gas companies using the Method of Comparables
  • Valuing an IPO
  • Most commonly used valuation ratios (multiples) and DCF valuation techniques for oil and gas companies
  • Enterprise valuation using EBITDA and EBITDX multiples
  • EBITDA and firm free cash flow
  • Why use EBITDA/EBITDX multiples rather than cash flow multiples?

Session 2: Valuation of Oil and Gas companies using relative valuation using market comparables – Part 2

  • Valuing a privately held firm
  • The effect of risk and growth potential on valuation multiples
  • Adjusting the multiple valuation metric for the private oil and gas firm discount
  • Equity valuation of an oil and gas firm using the priceearnings (PE) multiple
  • Valuing a division using the PE method – example for Exxon Mobil’s Chemical Division
  • Case study applications

Session 3: Case Study: Valuation of ExxonMobil’s Acquisition of XTO Energy using Relative Valuation

In this session, we will focus on valuation of a fairly recent acquisition – Exxon Mobil’s purchase of XTO Energy. Was XTO worth the $41 billion offered by ExxonMobil? There are many different methods by which to value firms in the industry; often other industry firms are used as benchmarks in the valuation process. Several will be explored here. There are five questions to be addressed specifically, they include: (1) What should the acquisition price for XTO shares have been? (2) Which comparable firm is the best comparison firm for XTO? (3) Why did ExxonMobil want to acquire XTO? (4) Based on the analysis, did ExxonMobil overpay for XTO or get a bargain? And (5) What additional information could help with this analysis?

Session 4: Open discussion of crucial issues from Days 1 through 4

In this final session of day 4, delegates will have the opportunity to further explore issues covered in the course. Attendees can choose cases to analyse that most closely match their areas of interest and will have the opportunity to work in a stimulating group setting with other participants. Delegates can share experiences, make suggestions, and query the group for their insights on topics of high concern in the oil and gas industry.

Day 5

Advanced Topics in International Accounting Standards and US GAAP for Oil and Gas Companies

Session 1: Accounting for Hedging Under IFRS – IAS 39 and US GAAP Financial Accounting Standards (FAS) 133

What are the current accounting standards as they relate to risk management? In this session, we will discuss these very issues as they relate to US GAAP and IAS

Topics included cover:

  • How should a company account to its shareholders for the derivatives it holds?
  • Example of a speculating position and hedging position
  • FAS 133 and IAS 39 (fair value hedge, cash flow hedge, speculative transaction) including definition of hedges, accounting of hedges, and criteria for hedging
  • Measuring hedge effectiveness under FAS 133 and IAS 39.

Session 2: Case study applications in hedging and risk management for oil and gas and accounting applications

Session 3:  Strategies to Maximize Value in the Global Oil and Gas Industry Value Chain

Mergers and acquisitions continue to be a feature of the global oil and gas industry landscape.  At the same time we have seen major integrated companies demerging.  What are the motives and are these strategies actually creating value?  Understanding these trends will help your company make value-enhancing strategic decisions in this competitive industry for future success.  In this session, we will discuss the pros and cons and evaluate these strategies energy companies are using for value creation.

  • Strategies employed: Mergers, acquisitions and demerging
  • How to unlock value from the energy value chain
  • New entrants and evolving competitive environment
  • Future strategies and best practices for success
  • Case study examples


Session 4: Course wrap-up

In this final session, delegates will have the opportunity to further explore issues covered in the course.

  • Betty is the Williams Companies Chair of Business and a Professor of Finance in the Department of Finance at Oklahoma State University’s Spears School of Business. She received her Ph.D. from Case Western Reserve University. She has received a number of teaching awards and research awards at OSU including the Regents Distinguished Teaching Award, the Regents Distinguished Research Award, the Outreach Excellence Award and the Outstanding OSU MBA Faculty Award.

    Her primary area of research is risk management but she also conducts research in energy finance, corporate governance (including board diversity), among other areas. She has co-authored more than 50 journal articles and book chapters and has won best paper awards for her research. She has published extensively on energy finance topics and is editor and co-author of Energy Finance and Economics: Analysis and Valuation, Risk Management and the Future of Energy. She has also published extensively on enterprise risk management (ERM), including Enterprise Risk Management: Insights and Analysis on Today's Leading Research and Best Practices (published by Wiley) and Enterprise Risk Management: Case Studies for Executives, Risk Practitioners, and Educators (2014).

    Betty serves on the editorial boards of nine academic journals including the Journal of Banking and Finance, is past co-editor of the Journal of Applied Finance and is past president of the Eastern Finance Association. She also serves on the Executive Advisory Committee of the Conference Board of Canada’s Strategic Risk Council. Prior to entering academia, she worked in the corporate world for ConocoPhillips and Williams Companies. She conducts executive education courses for companies globally.