Economic Aspects of Production Sharing Contracts

3 days 24-26 Jul 2017, London UK £3,450.00 + VAT* Download brochure Add to basket

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Overview

Overview

We are currently in the midst of one of the deepest downturns in the industry in recent years. Companies have to adjust to the new realities of a lower oil price and the possibly painful cost adjustment that goes with it.

When the oil price was $100/bbl+ probably both sides in the production sharing contract were making good returns and were therefore perhaps not too concerned that the fiscal structure of the PSC was optimal. But things are different now…….

It is essential that companies understand the finer nuances of the PSC fiscal terms to ensure they are structured optimally in this price environment.

What are the implications for cost recovery in this price environment?
Are the fiscal terms structured in a way to ensure my company gains from any cost reduction exercise it undertakes?

What the entitlement reserve bookings looking like for year end?

As an IOC, is now the time to negotiate new terms with the government? How do we do it? As an NOC should I be looking at negotiating a carry to reduce capital exposure?

This course will enable delegates to answer the above questions and many more
It explores the structure and mechanisms of production sharing contracts (PSC’s) and the economic principles that underpin them. Studying the underlying processes and commercial drivers, participants will examine case studies to illustrate the economic structure of these complex agreements. This course brings the theory to life, allowing course attendees to build and interpret their own PSC model based on a real life field development.

Course objectives:

  • Learn about the history, evolution and structure of PSC’s
  • Investigate cost recovery and profit sharing
  • Understand the interaction with royalties
  • Examine fiscal mechanisms and ring fence calculations
  • Identify taxation liability and allowances
  • Construct a production sharing contract spreadsheet model
  • Interpret model outputs to enhance investment decision making
  • Understand petroleum economic fundamentals to aid PSC negotiations and licence round bidding

Methodology

As with all Euromoney Training courses, this programme makes use of case studies and exercises to ensure that you leave the course, ready to apply your new knowledge.

Who should attend this training course?

This three day practical course is an ideal next step from our introductory course on upstream petroleum economics and risk analysis for delegates wishing to develop expertise in PSCs. Delegates should have a reasonable knowledge of Microsoft Excel ™ and bring a laptop loaded with Microsoft Office™ to the course.

Typical course participants are likely to be:

  • Production Sharing Partners
  • Economists working in the industry
  • Lawyers involved in the industry
  • Analysts working in the industry
  • Auditors working in the industry
  • Technical personnel working in the industry
  • Business development and Commercial Managers

Delegates will be provided with electronic copies of all workshop solutions and examples, and a comprehensive hard copy course manual.

Instructors

We work with a series of expert instructors, please select the course location of interest to review the credentials of who will be delivering the programme.

London
Tim James

Tim has extensive oil and gas industry knowledge having worked in various economic, finance and commercial roles over nearly 20 years.

Tim, a qualified Chartered Management Accountant, is currently Principal Economist in Robertson’s Petroleum and Reservoir Engineering Group based in Wallingford, Oxfordshire, UK. He has experience of fiscal jurisdictions and the commercial environment globally having undertaken numerous economic assignments ranging from the evaluation of farm in opportunities, licence round fiscal bidding advice and Competent Persons Reporting through to full corporate acquisition valuations.

He is an experienced economics trainer to the oil industry, national oil companies and governments running regular petroleum economics, fiscal and risk courses globally.

Prior to joining Robertson, Tim worked for Premier Oil in both their Pakistan and UK offices for nine years. A variety of project, commercial, asset management and finance roles covered areas such as field valuation for development, acquisitions and disposals, building economic models in both Microsoft® Excel and Merak PEEP®, management of budgets, statutory financial reporting and crude sales and marketing. 

 

Venue

London

Central London Hotel Venue

All courses are held at four or five star venues in Central London, Zone 1. We strive to provide you with a training environment of the highest quality, to ensure that the whole learning experience exceeds your expectations.

Your training venue will be confirmed by one of our course administrators approximately 3-4 weeks before the course start date.

Related Courses

Inhouse

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We’ll be here to support you every step of the way. From the initial consultancy through to evaluating the success of the full learning experience. We'll ensure you get the maximum return on your training investment.

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Agenda

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

Economic Aspects of Production Sharing

– 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

– Case studies

Sliding Scale Fiscal Mechanisms

– Production rate

– Production volume

– R-Factor

– Step versus incremental methods

– Sliding scale calculations and examples

Case studies

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 examples

Case studies

The Economics of PSC’s

– Contractor cash flow

– Government cash flow

– Comparison with Royal and Taxation systems

Case studies

Day 3

Libya PSC Economics Workshop

– Introduction to the Libya oil discovery, PSC based case study

– Establishing the economic model framework, structure & calculation flows

– Understanding the PSC fiscal structure & algorithms

– Determining the field, economic & fiscal data and building the input decks

– Step by step construction and audit of the PSC model

– Running the economic cases & evaluating the results

– Model solution

 

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