Advanced Oil & Gas Project Economics, Risk & Decision Analysis
A programme on assessing, managing and mitigating risk in petroleum projects, decision-tree analysis, expected utility and Monte Carlo simulation.
5 Days
Programme overview
The petroleum industry is one of the most important, highly capital intensive and risky businesses. The upstream sector faces pressure from higher costs of developing new reserves, less oil and gas found per foot of exploration drilling, rising inflation, global oversupply and price volatility. Competition for investments, acreage and concessions, aging reservoirs, and the unconventional oil and gas revolution all contribute to business risk and uncertainty.
Petroleum industry projects are by their very nature risky. The challenge is to assess, manage and mitigate this risk proactively. Three major planning challenges are predicting costs, assessing profitability and managing risk. These tasks occur in the early stages of capital planning, and failure to adequately evaluate them can lead to significant losses.
This programme equips participants with a disciplined, quantitative approach to these challenges, moving project appraisal away from single-point cost and revenue assumptions towards a probability-based view of project value. Participants build the analytical vocabulary and spreadsheet-based tools needed to test assumptions, quantify uncertainty and present investment recommendations that hold up under scrutiny from technical, finance and executive stakeholders alike.
Why this programme matters
A single petroleum capital-investment decision can commit an organisation to significant exposure over a multi-year development horizon, in a market where oil price, well performance and cost assumptions are all genuinely uncertain. Evaluating a project against one 'most likely' number, rather than the realistic range of outcomes it could actually produce, is one of the most common weaknesses in project appraisal, and one of the most expensive when the underlying assumptions prove wrong. Disciplined economic and risk analysis replaces that false precision with a defensible, probability-based view of what a project is genuinely worth.
- Capital committed to projects whose true risk profile was never properly quantified
- Investment recommendations built on single-point estimates rather than a realistic range of outcomes
- Limited visibility into which variables actually drive, or threaten, project value
- Difficulty defending an investment case to finance, technical and executive stakeholders under questioning
Learning objectives
- Learn how to handle uncertainty in petroleum projects.
- Understand different economic terms used in the oil and gas industry.
- Understand the expected value concept and its impact on decision-tree analysis.
- Understand expected utility theory concepts and attitudes towards risk, risk aversion and risk premium.
- Acquire spreadsheet skills including simulation software such as @RISK.
- Carry out cash-flow analysis for petroleum-related projects and use common economic indicators to evaluate competing alternatives.
- Carry out comprehensive economic studies evaluating petroleum-related projects using risk and sensitivity analysis through spreadsheets.
Key programme highlights
- Identification of the stages required in the risk analysis process: preparing, modelling and running risk analysis
- Development of the risk model and assessment of probabilities associated with different variables
- Analysis of uncertain variables and their potential impact on project outcomes
- Creation of reports such as tornado diagrams, scatter plots and cumulative probability functions using Excel
- Application of decision trees and Monte Carlo-based simulations to generate profitability indicators
- Development of probabilistic cash-flow reports and profitability indicators for decision-making
- Use of expected utility theory to understand how risk attitude, risk aversion and risk premium shape investment choices
- Building the analytical discipline to move from intuition-led estimates to evidence-based investment recommendations
Training methodology
The training course incorporates a mix of learning methods, including high-quality presentation materials, short videos and active class participation. An in-depth knowledge of quantitative risk-analysis techniques and hands-on problem-solving skills will be developed, with participants using PCs to solve a variety of problems and apply the material covered. The programme also uses the Microsoft Excel @RISK module to support quantitative analysis and encourage discussion among participants.
Who should attend
- Professionals involved in petroleum project economics
- Investment analysis professionals
- Risk management professionals
- Decision-makers working with petroleum projects and capital expenditure decisions
Organisational impact
- Learning how to apply economic valuation and risk-assessment processes within the global oil and gas industry
- Helping participants identify and analyse risk involved in petroleum-related projects
- Applying decision-making procedures to justify petroleum projects in terms of profitability
- Developing understanding of decision-analysis processes and foundation concepts for multidisciplinary evaluation teams
- Experiencing Monte Carlo simulation through hands-on exercises
- Adding value to active oil and gas projects through case studies
- Recognising and identifying the parameters influencing oil and gas field developments
Personal impact
- Describe the elements of the decision-analysis process
- Construct project cash-flow models incorporating sensitivity analysis
- Evaluate investment and design alternatives using decision-tree analysis
- Apply operational decision-making techniques using @RISK
- Identify important uncertainties in petroleum projects
- Understand the relationship between risk, uncertainty and project economics
- Apply quantitative techniques to petroleum project decisions
Course outline
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Considering this for your organisation?
Talk to our corporate learning team about delivering this programme, or a bespoke variant of it, for your team.