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


 

Do you have five or more people interested in attending this course? Do you want to tailor it to meet your company's exact requirements? If you'd like to do either of these, we can bring this course to your company's office. You could even save up to 50% on the cost of sending delegates to a public course.

To find out more about running this course in-house:





Our Tailored Learning Offering

If you want to run this course at a location convenient to you or if you want a completely customised learning solution, we can help.

We produce learning solutions that are completely unique to your business. We'll guide you through the whole process, from the initial consultancy to evaluating the success of the full learning experience. Our learning specialists ensure you get the maximum return on your training investment.

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We can offer any of our public courses delivered at your office or we can devise completely tailored solutions:


Read more about our offering or complete a call back request to speak to a learning specialist.

 

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 structure, content and flowchart 

 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 and investment decisions 
  • Inflation, cost escalation, real vs. nominal cash flows 
  • Managing and quantifying risk both deterministically and probabilistically
Day 2

 
Cost recovery 

  • Cost recovery mechanism 
  • Recoverable costs 
  • Cost oil, cost gas and NGL’s 
  • Excess cost recovery 
  • Cost recovery modelling in Excel

Cost recovery case studies: Angola, Indonesia, Equatorial Guinea, Egypt, Syria, Gabon 

Profit sharing 

  • The profit pool 
  • Profit sharing 
  • Profit gas and profit oil 
  • Profit sharing modelling in Excel

Profit sharing case studies: Angola, Indonesia, Equatorial Guinea, Egypt, Syria, Vietnam 
Bonuses 

  • Signature and commerciality bonuses 
  • Production bonuses 
  • Cost recoverability 
  • Bonus modelling in Excel

Bonus case studies: Gabon, Vietnam, Sudan, Oman, Syria

Sliding scale fiscal mechanisms 

  • Production rate sliding scales on production rate and volume 
  • R-Factor and rate of return methods 
  • Step versus incremental methods 
  • Influencing activity through sliding scales

Case studies: Angola, China, Equatorial Guinea, Bangladesh, Algeria, Nigeria, Sao Tome, Tunisia, Libya

Taxation 

  • The basis of the taxation liability 
  • The CT ring fence 
  • Chargeable income 
  • Capital allowances 
  • Liability and payment phasing 
  • The treatment of tax losses 
  • Tax holidays 
  • Taxation modelling in Excel

Case studies: Cameroon, Albania, Sao Tome, Algeria, Indonesia, Mozambique, China, India, Jamaica, Cote d’Ivoire, Egypt, Libya, Cyprus, Gabon

Day 3

 
Ring fences 

  • PSC ring fence 
  • Taxation ring fence 
  • Ring fence calculations and examples 
  • Ring fences in a strategic context

Case studies: Cambodia, Cuba, Malaysia, Angola

The economics of PSC’s 

  • Contractor cash flow 
  • Government cash flow 
  • Cost carry arrangements 
  • Comparison with royal and taxation systems 
  • Optimisation of PSC terms 
  • Working interest vs. entitlement 
  • The treatment of abandonment expenditure in PSC’s


Case studies
: Algeria, Angola, Libya, Vietnam, Equatorial Guinea

Summary of the Petroleum Industry Bill (PIB)

  • An outline of the key points of the bill will be given focussing on the revised economic terms, there will be a class discussion on how the bill may impact on the industry

Nigeria PSC Economics Workshop 

  • A Nigeria PSC based case study modelling the fiscal terms in Microsoft Excel


Understanding the PSC fiscal structure and algorithms of the Nigeria contract 

  • 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 
  • Model solution provided to delegates



 

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