Finance and Capital Investment Analysis for Project Managers and Technical Professionals in the Energy Industry

This in-depth and practical three day course will demystify finance and cover best practices in financial analysis. By the conclusion of the course, delegates will be able to communicate easily in financial terms. They will be able to comprehend and interpret financial information, understand the importance of cashflow, match their capital budgets to realistic targets, and accurately analyze capital investments. Most importantly, delegates will learn best practices in all of these areas.

  • 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.

You will:

  • Understand the “big picture” of finance and capital investment analysis and how this relates to daily business decisions
  • Discover how to conduct capital investment analysis and confidently communicate with accounting and finance professionals
  • Effectively analyse the impact of financial decisions on your business
  • Understand the power of discounted cash flow in management decision making
  • Apply concepts learned to capital investment decisions under capital rationing
  • Analyse capital investment decision case studies specific to the oil and gas industry
  • Learn best practices used by companies around the world

Course Overview

Technical professionals are expected to make financially based decisions, often without a formal financial background or training on best practices in capital investment analysis. This in-depth and practical three day course will demystify finance and cover best practices in financial analysis. By the conclusion of the course, delegates will be able to communicate easily in financial terms. They will be able to comprehend and interpret financial information, understand the importance of cashflow, match their capital budgets to realistic targets, and accurately analyze capital investments. Most importantly, delegates will learn best practices in all of these areas.

This training will benefit your organization by giving delegates greater knowledge on best practices to make better decisions in finance and help their organization reach new heights and improve firm value. The trainer will conduct a dynamic and resourceful training that you do not want to miss! This course qualifies for continuing education credit for licensed Professional Engineers and also Profession Development Hours for other disciplines.

Who should attend

  • Engineers and Technical Professionals
  • Project Managers
  • Business Development
  • Sales and Marketing
  • HR Directors
  • Procurement & Purchasing
  • Other professionals who wish to understanding finance and capital investment analysis

Day 1

Understanding Financial Accounting and Financial Information

The Accounting Process and The Driving Forces Behind Financial Information

  • Understanding the harmonisation of global accounting standards and the role of IAS (International Accounting Standards)
  • Understanding the language of accounting and the sources of financial information
  • Gaining an insight into accounting systems, terminology and concepts
  • Examining why the timing of a transaction is so important to the finance function
  • Overview of the content of the annual report and 10-K report
  • Knowing where to find useful information

Analysing and Interpreting Financial Information

  • Learning the jargon and recognising what is revealed in the financial press
  • Understanding the language of finance
  • Learning what a set of accounts reveals about a company’s current situation, profitability and future prospects
  • Determining how to effectively use all the available information
  • Understanding why and how figures can be manipulated
  • Employing analytical review and financial statement analysis
    • Liquidity: is the firm able to meet its current obligations
    • Asset Management: is the firm effectively managing its assets
    • Debt Management: does the firm have the right mix of debt and equity?
    • Profitability: the comfined effects of liquidity, asset and debt management
    • Market Values: relates the firm's stock price to its earnings and the book value per share
    • Energy Ratios: Is the company replacing oil and gas reserves? How much does the company spend replacing reserves through exploration and/or purchases reserves from other companies? How long will the company's reserves last?

Group Exercise: Financial statement analysis of international oil and gas companies including competitive benchmarking.

Case Studies on Analysing and Interpreting Financial Information

Case Study: Participants will apply the concepts learned in the prior session to analyse a current annual report of an actual international company operating in the region. The focus will be on energy companies.

Minicase: Participants will also analyse a Financial Detective case study. The concepts will introduce participants to basic analysis of financial ratios to gain insights about strategy and financial performance. Participants will learn that the economics of individual
industries accounts for significant variation in financial ratios because of different technologies, product characteristics or competitive structures. This exercise illustrates that financial performance results from managerial choices. Within industries, the wide
variation in financial ratios is often a result of a difference in corporate strategy in marketing, operations and finance.

Planning and Budgetary Control

  • Breaking down barriers between management accounting and operations departments
  • Six Sigma in Budgeting: In today’s competitive economic environment, organisations need to improve quality, solve problems, and increase efficiencies. Six Sigma has proven valuable to large and small companies around the world in all these areas.
  • Determining why budgets play a key role and are not simply an annual chore
  • Purposes of budgets: the link between the strategic plan and the company culture
    • Budgets as motivators
  • Setting realistic goals you can apply to your area of responsibility
    • How your role relates to the budget cycle
    • Key budgeting techniques
    • Understanding the difference between budgets and cash flows and how they relate to one another
  • Reading: Corporate Strategy and the Capital Budgeting Decision

Case Study: Participants will apply corporate strategy and the capital budgeting decision to international energy companies operating in Asia and Europe.

Day 2

Understanding Financial Management and Capital Investment Analysis

Participants should bring a calculator to apply concepts learned in all of the sessions today. Also, a laptop computer is highly
recommended. Excel files will be provided to illustrate concepts learned.

Fundamentals of Finance and Essential Tools for Effective Business Decisions

  • The time value of money
  • Estimation of cash flows and concepts such as future value, present value, and valuing annuities
  • Calculator and excel applications of time value of money concepts
  • Understand the essential tools for financial management including direct versus indirect costs and overheads
  • Understanding the trade off between risk and return and how to apply these tools to optimise outcomes
  • What drives asset values
  • Understand the limitations behind valuation models

Part 1 of Project Appraisal and Capital Investment Analysis - Estimating the Cost of Capital

  • Best practices in estimating the cost of capital
  • How to make a business case: The Three-Phase Investment Evaluation Process
  • Fundamental tools of investment appraisal
  • Estimating the cost of equity and cost of debt
  • Systematic vs. non-systematic risk
  • Estimating the Weighted Average Cost of Capital (WACC)
  • Adjusting the cost of capital and hurdle rate for projects with different risk

Group exercises: Analysing the cost of capital for global oil and gas companies.

Part 2 of Project Appraisal and Capital Investment Analysis - Leading Capital Investment Analysis Techniques

  • Best practices in capital budgeting
  • Return on capital employed; why it is used, what it tells us and the limitations
  • Discounted cash flow techniques
    • Payback period and discounted payback period
    • Net Present Value
    • Internal rate of return
    • Modified internal rate of return
    • Equivalent annual annuity
    • The problems of short-termism in investment appraisal
  • Sensitivity analysis: how sensitive are key decisions to potential changes in circumstances?
  • Scenario analysis
  • Real options – valuing managerial flexibility

Case Study: Determining the NPV for capital investment analysis: PKO Resources: Valuing a Producing Oil and Gas Property.

Part 3 of Project Appraisal and Capital Investment Analysis - Excel Exercises on Investment Analysis

Participants will have the opportunity to learn and apply Excel applications of the concepts learned today to case studies and

Case Study: Evaluating the capital investment decision at different levels of cost and savings for Lockheed Tri Star.

Day 3

Best Practices: Intensive Hands-On Exercises and Case Studies in Finance and Capital Investment Analysis
(Delegates are highly encouraged to bring lap-top computers to use this day.)

In Day 3, delegates will have the opportunity to apply what they learned in Days 1 and 2 by working through practical exercises
and analysing case studies in accounting, finance, and capital investment analysis. During this day, leading analytical skills
and techniques will be discussed and illustrated using real case studies. Delegates are encouraged to bring their laptop computers to this day to apply topics learned in Days 1 and 2 using Excel spreadsheets, Excel functions, Monte Carlo Simulation, and more. You do not want to miss this day!

Best Practices in Making Optimal Capital Budgeting Decisions

  • Excel applications of payback period and discounted payback period, net present value, internal rate of return, and modified internal rate of return
  • Hands-On exercises

Role Playing and Case Study on Capital Resource Allocation within Corporations

  • Explore the problem of resource allocation within corporations
  • Illustrate and assess the impact of capital rationing on capital investment decisions
  • Interpret the implications of classic tools of investment analysis
  • Consider the impact of behavioral influences on financial decision making

Application of Best Practices in Capital Investment Analysis - Case Study of Energy Savings Project Investment Decision

  • Illustrate making a capital investment decision versus a “donothing” case
  • Analysis of energy savings, tax implications, payback period, and return on capital investments using Excel
  • Estimating cash flows
  • Effects of corporate culture on decision making
  • Analysis of the cost of capital effects on decision making

Case Study: How to analyse a project for energy savings and energy efficiency: Southwest Airlines decision to retrofit their Boeing aircraft with Blended Winglets

Best Practices in Risk Analysis of Capital Investments

Case study application in the energy industry: Dominion, Pioneer, and Williams Companies decision to build the Devil’s Tower Spar in the Gulf of Mexico

  • Analytical skills, techniques, and challenges in risk analysis: Revenues and prices, cost of capital, construction costs, startup delays
  • Risk analysis of projects in Excel using
    • Sensitivity analysis and sensitivity charts
    • Scenario analysis
  • Advanced risk analysis in Excel using Monte Carlo simulation

(Note: Monte Carlo simulation will also be used to model uncertainty for key value drivers. 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 risk analysis of capital intensive projects since the outcomes are often the result of the interaction of a number of interrelated factors (or value drivers) that are highly uncertain.)

    • Distribution fitting and correlation assumptions
    • 5 basic rules of thumb in choosing probability distributions and three popular probability distributions for use in simulation models
    • Displaying and understanding output - Tornado Charts, etc
    • Mean reverting processes incorporating Poisson jumps
  • Course wrap-up
  • 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.

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