Petroleum Economics Course

Lesson 1 • Units, Measures, and Data Sources

Establishes standard petroleum measurement units and introduces authoritative data sources. Ensures accurate quantitative communication throughout the course.

Lesson 2 • Petroleum as an Economic Commodity

Examines crude oil and natural gas as traded commodities with unique supply and demand characteristics. Links commodity behavior to economic decision-making.

Lesson 3 • Key Economic Concepts for Petroleum

Introduces core microeconomic principles applied to petroleum decisions. Grounds students in opportunity cost, marginal analysis, and resource scarcity.

Lesson 4 • Structure of the Petroleum Industry

Maps the full petroleum value chain from exploration to retail. Establishes the institutional and commercial context for all subsequent economic analysis.

Lesson 1 • Internal Rate of Return and Payback

Explains IRR computation and payback period as supplementary investment metrics. Highlights their limitations relative to NPV in petroleum project ranking.

Lesson 2 • Annuities and Perpetuities

Introduces annuity and perpetuity formulas for valuing uniform and growing cash flow streams. Applies these tools to royalty and production payment structures.

Lesson 3 • Net Present Value Mechanics

Derives and applies the NPV formula to multi-period petroleum cash flows. Establishes NPV as the primary decision criterion for capital allocation.

Lesson 4 • Discount Rate Selection

Covers methods for choosing an appropriate discount rate for petroleum investments. Connects rate selection to risk, capital structure, and corporate hurdle rates.

Lesson 1 • Development and Production Cost Estimation

Covers methods for estimating field development capital and lifting costs. Provides tools for building field-level cost models tied to production profiles.

Lesson 2 • Cost Classification in Petroleum Projects

Distinguishes capital, operating, and abandonment costs specific to petroleum projects. Accurate classification is prerequisite to building reliable economic models.

Lesson 3 • Cost Escalation and Contingency

Addresses inflation, escalation indices, and contingency allowances in petroleum budgets. Prepares students to build cost estimates that reflect real-world uncertainty.

Lesson 4 • Exploration and Appraisal Cost Drivers

Identifies the technical and commercial factors that drive exploration and appraisal spending. Links geological uncertainty to cost variability and budget risk.

Lesson 1 • Petroleum Reserve Classification Systems

Explains internationally recognized reserve and resource classification frameworks. Establishes the probabilistic and commercial criteria that define proved, probable, and possible reserves.

Lesson 2 • Production Profile Construction

Guides students through building a full field production profile from ramp-up to abandonment. Links profile shape to development plan, well count, and facility constraints.

Lesson 3 • Decline Curve Analysis

Introduces exponential, hyperbolic, and harmonic decline models for production forecasting. Applies decline curve analysis to estimate ultimate recovery and production timing.

Lesson 4 • Probabilistic Reserve Estimation

Applies Monte Carlo and volumetric methods to quantify reserve uncertainty. Connects P10, P50, and P90 estimates to economic scenario planning.

Lesson 1 • Fiscal Regime Impact on Investment

Evaluates how fiscal terms affect project viability, exploration incentives, and capital allocation. Connects fiscal design to investor behavior and resource development outcomes.

Lesson 2 • Measuring Government Take

Introduces metrics for comparing fiscal regimes, including government take percentage and NPV government take. Applies these metrics to rank regime attractiveness for investors.

Lesson 3 • Overview of Petroleum Fiscal Systems

Categorizes the principal fiscal regime types used globally in petroleum agreements. Establishes the policy objectives governments pursue through fiscal design.

Lesson 4 • Royalties, Taxes, and Bonuses

Details the mechanics of royalties, income taxes, and signature bonuses as fiscal instruments. Quantifies their impact on contractor cash flow and project economics.

Lesson 1 • Revenue Modeling and Price Assumptions

Constructs the revenue block of a DCF model using production profiles and price decks. Addresses quality adjustments, transportation deductions, and realized price estimation.

Lesson 2 • Model Outputs and Investment Metrics

Derives NPV, IRR, payback, and profitability index from the completed DCF model. Interprets results in the context of investment decision criteria and capital rationing.

Lesson 3 • Cost and Investment Scheduling

Integrates CAPEX, OPEX, and abandonment costs into the DCF timeline. Applies phased investment scheduling to reflect real project development sequences.

Lesson 4 • Fiscal Calculations Within the DCF

Embeds royalty, tax, and cost recovery calculations into the cash flow model. Produces contractor and government cash flow splits consistent with fiscal regime terms.

Lesson 1 • Communicating Risk to Stakeholders

Develops skills for presenting risk analysis results clearly to technical and non-technical audiences. Addresses common misinterpretations and best practices in risk communication.

Lesson 2 • Expected Monetary Value and Decision Trees

Applies EMV and decision tree analysis to sequential petroleum investment decisions. Integrates probability of success with economic outcomes to rank alternatives.

Lesson 3 • Sources of Risk in Petroleum Projects

Categorizes geological, technical, commercial, and political risks affecting petroleum economics. Provides a structured risk taxonomy used throughout the chapter.

Lesson 4 • Deterministic Sensitivity Analysis

Applies one-at-a-time and scenario analysis to identify key value drivers. Produces tornado charts and spider diagrams to communicate sensitivity results.

Lesson 1 • Real Options in Petroleum Investment

Introduces real options theory as a complement to DCF for valuing managerial flexibility. Applies option concepts to drill-or-defer, expand, and abandon decisions.

Lesson 2 • Project Ranking and Capital Rationing

Compares ranking methods under capital constraints, including NPV, IRR, and profitability index. Resolves conflicts between metrics to identify the optimal investment set.

Lesson 3 • Portfolio Construction and Diversification

Applies portfolio theory to petroleum asset selection to balance risk and return. Demonstrates how diversification across basins and project types reduces portfolio risk.

Lesson 4 • Mergers, Acquisitions, and Asset Transactions

Evaluates petroleum asset acquisitions using DCF, comparable transactions, and reserves-based metrics. Addresses bid strategy, synergy valuation, and deal structuring.