PETROENG 4034 - Petroleum Business & Project Economics

North Terrace Campus - Semester 2 - 2017

Petroleum engineers perform technical work to support the "business" objectives of the organization they work for (corporation, government). It is therefore important that they understand that "business" because it will influence the judgments they make. Economic evaluations provide the main source of the organization's information by which investment and operational decisions are made regarding the most effective use of resources. There are many subtleties and assumptions that underlie the apparently straight-forward economic calculations that are often seen. Consequently, a fundamental understanding of the concepts behind economic evaluation and of techniques for performing them within a petroleum context, are essential skills. Topics to be included are: oil & gas business context, economic and business concepts, cash-flows and petroleum fiscal regimes, time-value of money, discounted cash flow, net present value and other economic metrics, case study and portfolio management. If time permits, there will be an introduction to real options analysis and its application to valuing flexibility and risk.

  • General Course Information
    Course Details
    Course Code PETROENG 4034
    Course Petroleum Business & Project Economics
    Coordinating Unit Australian School of Petroleum
    Term Semester 2
    Level Undergraduate
    Location/s North Terrace Campus
    Units 3
    Contact Intensive course of lectures, examples and computer-based exercises
    Available for Study Abroad and Exchange Y
    Incompatible PETROENG 3002, PETROENG 4031
    Assumed Knowledge Introductory petroleum geology and engineering, SACE Stage 2 Maths, competency in Excel
    Restrictions Available to BE(Petroleum) students only
    Course Description Petroleum engineers perform technical work to support the "business" objectives of the organization they work for (corporation, government). It is therefore important that they understand that "business" because it will influence the judgments they make. Economic evaluations provide the main source of the organization's information by which investment and operational decisions are made regarding the most effective use of resources. There are many subtleties and assumptions that underlie the apparently straight-forward economic calculations that are often seen. Consequently, a fundamental understanding of the concepts behind economic evaluation and of techniques for performing them within a petroleum context, are essential skills. Topics to be included are: oil & gas business context, economic and business concepts, cash-flows and petroleum fiscal regimes, time-value of money, discounted cash flow, net present value and other economic metrics, case study and portfolio management. If time permits, there will be an introduction to real options analysis and its application to valuing flexibility and risk.
    Course Staff

    Course Coordinator: Professor Steve Begg

    Course Timetable

    The full timetable of all activities for this course can be accessed from Course Planner.

  • Learning Outcomes
    Course Learning Outcomes
    On successful completion of this course students will be able to:

     
    1 Understand the broader oil & gas industry context within which economic evaluations take place, including societal and ethical factors that impact organizational (public, private and national) business goals
    2 Know (recall, define, describe) and comprehend (explain) the main concepts, terminology, tools and processes used in economic evaluations ( oil & gas industry and for personal)
    3 Recall and describe key cash flow components (including taxes) and be able to compute a Net Cash Flow (NCF)
    4 Recall and describe key factors that effect the time value of money and compute a Discounted Cash Flow (DCF)
    5 Calculate and interpret measures of the economic value of a DCF and be able to use them to make investment recommendations, both stand-alone and portfolio
    6 Comprehend how economic evaluations are typically performed and used in practice through a real industry case study
    7 Understand the capabilities of commercial economic evaluation software (PEEP) that is commonly used in the O&G industry
    8 As an effective team member, research a paper related to the course material, develop and present (using Powerpoint) a critical review of the paper, and evaluate its contribution to the literature of the topic area
    9 Develop a broader, contextual perspective of the business of petroleum, and project economics, by being able to identify credible papers, and reading, comprehending and evaluating them
    10 Be proficient in applying an expanded range of generic Excel capabilities (relevant to economic evaluation and other petroleum engineering problems)

     
    The above course learning outcomes are aligned with the Engineers Australia Stage 1 Competency Standard for the Professional Engineer.
    The course is designed to develop the following Elements of Competency:

    University Graduate Attributes

    This course will provide students with an opportunity to develop the Graduate Attribute(s) specified below:

    University Graduate Attribute Course Learning Outcome(s)
    Deep discipline knowledge
    • informed and infused by cutting edge research, scaffolded throughout their program of studies
    • acquired from personal interaction with research active educators, from year 1
    • accredited or validated against national or international standards (for relevant programs)
    2-5, 9, 10
    Critical thinking and problem solving
    • steeped in research methods and rigor
    • based on empirical evidence and the scientific approach to knowledge development
    • demonstrated through appropriate and relevant assessment
    1, 5, 8, 9
    Teamwork and communication skills
    • developed from, with, and via the SGDE
    • honed through assessment and practice throughout the program of studies
    • encouraged and valued in all aspects of learning
    8
    Career and leadership readiness
    • technology savvy
    • professional and, where relevant, fully accredited
    • forward thinking and well informed
    • tested and validated by work based experiences
    1, 6, 7, 10
    Intercultural and ethical competency
    • adept at operating in other cultures
    • comfortable with different nationalities and social contexts
    • Able to determine and contribute to desirable social outcomes
    • demonstrated by study abroad or with an understanding of indigenous knowledges
    1
    Self-awareness and emotional intelligence
    • a capacity for self-reflection and a willingness to engage in self-appraisal
    • open to objective and constructive feedback from supervisors and peers
    • able to negotiate difficult social situations, defuse conflict and engage positively in purposeful debate
    8
  • Learning Resources
    Required Resources

    Lectures. PDFs of powerpoints and readings handed out during class. Additional (after-class) exercises & readings.

    Recommended Resources

    There is no single text that covers all the material in this course. The following would be useful:

    Oil & Gas focused

    • Mian, M.A.: Project Economics and Decision Analysis, Vol. I & II, PennWell
    • Campbell, J.M. Jr., Campbell, J.M. Sr., Campbell, R.A.: Analyzing and Managing Risky Investments, John M. Campbell, Norman, OK
    • Hinkin, C: Introduction to Petroleum Economics Project Economics, Society of Petroleum Engineers, Richardson, Tx, (2017)

    General Engineering Economics

    • Hartman, J.: Engineering Economy and Decision-Making Process, Pearson
    • Park, C.S.: Fundamentals of Engineering Economics, Pearson Prentice Hall

    Websites:

    Online Learning

    Powerpoints and Exercises (& their solutions) will be distributed on MyUni along with additional handouts.

    Good sources of help with learning are the downloadable learning guides (Writing, Effective Reading, Making Notes, Time Management, Exam Prep, etc) and links to other learning resources at:
    http://www.adelaide.edu.au/clpd/all/stud_resources/ 

    The "Writing and Speaking at Uni" course will help with assignments. I can provide further tips on preparing presentations for those that would like them.

  • Learning & Teaching Activities
    Learning & Teaching Modes

    The block-course format (sometimes, misleadingly, called short-course) is commonly used in industry (continued professional development) and is the norm for 4th year and post-graduate courses in the ASP.

    It also represents a stage when you are expected to take greater responsibility for your own learning – lectures cover the main ideas and are pointers to the topics you should learn about – rather than comprehensive coverage of the curriculum.

    One of the advantages of the block-course format is that you can immerse yourself in a single subject, without distraction or having to “re-load” for each session. Another is that there is no need to force-fit the material to the 1hr lecture/tute format – each topic can be addressed in the time it needs. Yet another advantage is that it provides an opportunity for immediate feedback as exercises are carried out, and solutions presented, in-class, after the concept has been taught.

    Laptops will be provided for in-class exercises – students are expected to engage with discussions.

    A disadvantage is that the compressed time-scale means that you do not have as much time to let one concept sink in before moving on to another. For this reason

    • ­we integrate the exercises to practice concepts immediately after learning them, before moving on to the next concept. The amount of time for in-class exercises is set such that 90% or more of students should be able to finish them.
    • you are STRONGLY ADVISED to take a break after the end of class each day and then revise the day’s material for a couple of hours.

    Learning tips (not just for short courses):
    For most people it takes about 4 repetitions to get information into your long term memory. Apparently (can’t remember where I learnt this from) the best way to do it is to revise the information the day you learn it (2nd time), then one week later (3rd time), then one month later (4th time).

    At the start of a course section, I usually provide grey-scale versions of the PowerPoint slides shown in class Students often find it useful to have several highlighter pens for use with these handouts, because I make a lot of use of colour. PDF files of the full colour PowerPoint slides will be available on MyUni after the class.

    Workload

    The information below is provided as a guide to assist students in engaging appropriately with the course requirements.

    This information is provided as a guide to assist students in engaging appropriately with the course requirements. This course involves approximately the same number of contact hours that would be delivered in a semesterised course (45). During a semesterised course, you would be expected to spend a approximately twice the number of hours outside of class – learning the material, revising notes, reading more widely about the topics covered, after class exercises, practicing examples, finishing in-class exercises, etc. The same is true for block-course – but this must occur after the course. Do not be fooled into thinking that, apart from the follow-up assignment, “it's an intense week (and a bit), then I’m done”. To do so is likely to lead to decreased learning and poorer performance in the exam than you would otherwise achieve – you have been advised!

    Learning Activities Summary

    The overall structure of the course material is as shown below. Details of the topics to be covered each day will be provided at the start of the first teaching block.


    The main topics will include:

    • Business Context of Economic Evaluation
      • ­ Industry overview. Oil & gas decisions
      • ­ Business concepts. Role of the Company and role of Engineers in decisions
      • ­ Introduction to Project Economics
    • Project cash flows
      • ­ Cash Flow Components – types and sources of information
      • ­ Depreciation and Depletion
    • Fiscal regimes
      • ­ Overview
      • ­ Concessionary (USA)
      • ­ Production Sharing Contracts (Indonesia)
      • ­ Australian Fiscal Regimes
    • Time-Value of Money
      • ­ Economic Equivalence
      • ­ The Earning Power of money - Interest Calculations and Financial Mathematics
      • ­ The Purchasing Power of Money - Inflation
    • Evaluating Investment Opportunities
      • ­ Payout and discounted payout
      • ­ Present-worth (NPV) analysis
      • ­ Rate-of-return analysis
      • ­ Capital Efficiency
    • Case Study & Software Demo (PEEP)
    • Project Presentations
    • Self-directed learning on Economic Evaluation topics
    Specific Course Requirements

    None

  • Assessment

    The University's policy on Assessment for Coursework Programs is based on the following four principles:

    1. Assessment must encourage and reinforce learning.
    2. Assessment must enable robust and fair judgements about student performance.
    3. Assessment practices must be fair and equitable to students and give them the opportunity to demonstrate what they have learned.
    4. Assessment must maintain academic standards.

    Assessment Summary
    Assessment Task Weighting (%) Individual/ Group Formative/ Summative
    Due (week)*
    Hurdle criteria Learning outcomes
    Midcourse test 10 Individual Summative N/A Block mode 1. 2. 3.
    Assignment 30 Group Summative N/A Block mode 2. 8. 9.
    Exam 60 Individual Summative 1. 2. 3. 4. 5. 6. 7. 9. 10.
    Total 100
    * The specific due date for each assessment task will be available on MyUni.
     
    This assessment breakdown complies with the University's Assessment for Coursework Programs Policy.
     
    Assessment Related Requirements

    Final mark will be a weighted average of each component. There is no requirement to achieve a minimum mark in any individual component of the assessment

    Assessment Detail

    Mid-course: 35min, around 5 short-answers questions. The main function of the mid-course test will be to provide further examples of the main exam and to illustrate the standard of answers expected. To facilitate this, and to provide rapid feedback, the mid-course test will be marked, and ideal answers discussed, in-class. Although the main purpose of the mid-course test is formative, a 10% contribution to final grade is awarded to incentivise full participation and therefore deriving maximum value from it. An example question and ideal answer will be provided prior to the test.

    Assignment: will be in the form of a group project. Full details will be provided during the first teaching block and posted on MyUni. The purpose of the assignment is two-fold. First as a component of assessment, second as a part of course content – all class members will listen to each group presentation. A rubric will be provided to illustrate expected achievement levels for each marking criterion.

    Final exam: 3 hours, closed-book, during the semester 2 official examination period. About 15 short-answer questions, no choice, in the same style as the course examples & the mid-course test. There will be a discussion, and illustration, of typical exam questions in the first session, and at the mid-course test.

    Further details, and tips, will be discussed in class and recorded via Powerpoint slides and Handouts.

    Submission

    Submission of Assignment
    Details will be provided during the first teaching block and posted on MyUni thereafter.

    Extensions for Assessment Tasks
    Extensions of deadlines for assessment tasks may be allowed for reasonable causes. Such situations would include compassionate and medical grounds of the severity that would justify the awarding of a replacement examination. Evidence for the grounds must be provided when an extension is requested. Students are required to apply for an extension to the Course Co-ordinator before the assessment task is due. Extensions will not be provided on the grounds of poor prioritising of time or minor illness.

    Penalty for Late Submission of Assessment Tasks
    Assessment tasks must be submitted by the stated deadlines unless you have previously arranged this with Prof Begg for extenuating circumstances – (poor time planning, conflicting activities and minor illness are not extenuating circumstances). There will be a penalty for late submission of assessment tasks. The submitted work will be marked ‘without prejudice’ and 10% of the obtained mark will be deducted for each working day (or part of a day) that an assessment task is late, up to a maximum penalty of 50% of the mark attained,

    An examiner may elect not to accept any assessment task that a student wants to submit after that task has been marked and feedback provided to the rest of the class.

    Course Grading

    Grades for your performance in this course will be awarded in accordance with the following scheme:

    M10 (Coursework Mark Scheme)
    Grade Mark Description
    FNS   Fail No Submission
    F 1-49 Fail
    P 50-64 Pass
    C 65-74 Credit
    D 75-84 Distinction
    HD 85-100 High Distinction
    CN   Continuing
    NFE   No Formal Examination
    RP   Result Pending

    Further details of the grades/results can be obtained from Examinations.

    Grade Descriptors are available which provide a general guide to the standard of work that is expected at each grade level. More information at Assessment for Coursework Programs.

    Final results for this course will be made available through Access Adelaide.

  • Student Feedback

    The University places a high priority on approaches to learning and teaching that enhance the student experience. Feedback is sought from students in a variety of ways including on-going engagement with staff, the use of online discussion boards and the use of Student Experience of Learning and Teaching (SELT) surveys as well as GOS surveys and Program reviews.

    SELTs are an important source of information to inform individual teaching practice, decisions about teaching duties, and course and program curriculum design. They enable the University to assess how effectively its learning environments and teaching practices facilitate student engagement and learning outcomes. Under the current SELT Policy (http://www.adelaide.edu.au/policies/101/) course SELTs are mandated and must be conducted at the conclusion of each term/semester/trimester for every course offering. Feedback on issues raised through course SELT surveys is made available to enrolled students through various resources (e.g. MyUni). In addition aggregated course SELT data is available.

  • Student Support
  • Policies & Guidelines
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