School of Engineering and Technology, (SET)
 
CE71.9016 : Selected Topic: The Economics of Oil and Gas Projects  3(3-0)
 
Course objectives:

Introduce students to the concepts of economics of oil and natural gas development, production and trading, particularly in the upstream oil and gas industries.
 
Learning Outcomes:
Ability to:
  • Explain the structure and market mechanism of the oil and gas industries
  • Apply financial derivatives as hedging tools for oil price risk management
  • Construct the financial model to evaluate the oil and gas development project
  • Analyze the effect of the different petroleum fiscal systems around the world to the discounted cash flow model of the oil and gas projects
 
Pre-requisite(s):

None
 
Course Outline:
I.          The oil and gas markets and pricing mechanism
1.     Introduction to the economics of oil and gas: historical background of the oil industry
2.     Structure of the oil industry and global oil markets
3.     Oil market fundamentals and pricing mechanisms: determinants of oil demand and supply, price theory and basic macroeconomic factors
4.     Crude oil and domestic pricing of oil and natural gas
5.     Basic principles of oil price risk management: financial derivatives as hedging tools.

II.         The Discounted Cash flow model of the oil and gas development projects
1.     Oil and gas project investment and the oil company objectives
2.     Reserve definition and financial statement
3.     Discounted cash flow (DCF) model for the oil and gas development project
4.     Oil and gas project after-tax cash flow determinations and discounting
5.     Worldwide petroleum fiscal system.

III.       Oil and gas project valuation and basic risk consideration     
1.     Project valuation criteria and project selection
2.     Project hurdle rate or risk-adjusted discount rate determination
3.     Project risk consideration: sensitivity analysis and scenario analysis
 
Laboratory Sessions:

None
 
Learning Resources:

Textbook:
1.     M.A. Mian: Project Economics and Decision Analysis, Vol: 1, 2nd Edition, PennWell Corp., 2011
2.     A.Inkpen and M.H. Moffett: The Global Oil and Gas Industry: Management, Strategy and Finance, PennWell Corp., 2011
3.     Technip: Oil and Gas Exploration and Production: Reserves, Costs, Contracts,
4.     IFP Publications, 2007.
5.     Lecture notes and selected papers
 
Reference Books:
1.     R. D. Seba: Economics of Worldwide Petroleum Production, 2nd. Edition, OGCI and Petroskills Publications, 2003.
2.     C. F. Conaway: The Petroleum Industry: A Non-Technical Guide, Penn Well, 1999.
3.     D. Yergin: The Prize: The Epic Quest for Oil, Money, and Power, Simon & Schuster, 1991.
4.     D. Johnston: International Petroleum Fiscal Systems and Production Sharing Contracts, Pennwell Publishing, 1994.
 
Journals and Magazines:
1.     Energy Economics
2.     Energy Journal
3.     Natural Resources Forum
4.     Energy Policy
 
Time Distribution and Study Load:

For every 1 hour lecture, student is expected to spend at least 3 hours of self-study and working on the 2-3 assignments.
 
Teaching and Learning Methods:

Lectures, classroom exercises, home assignments and group projects.

 
Evaluation Scheme:

The final grade will be computed according to the following weight distribution: mid-sem exam (30%) final exam (30%), assignments/projects (40%). Closed book examinations are usually given both in the mid-semester and finals.
 
Instructor(s):
SECTION NAME