Production Sharing Contracts & Upstream Economic Analysis

Course overview This course explores the structure and mechanisms of production sharing contracts (PSC's) for upstream oil and gas projects. Studying the underlying processes and commercial drivers, participants will examine case studies to illustrate the economic structure of these complex agreements. The PSC Economic course brings the theory to life, allowing course attendees to build and interpret their own PSC model based on a real life example. Enhance your knowledge in the following key areas: The history and evolution of production sharing contracts (PSC’s) The PSC flowchart, content and format Cost recovery Profit sharing Bonuses Sliding scale fiscal mechanisms Taxation Ring fences The economics of PSC’s Plus: Vietnam PSC case study Course objectives Learn about the history, evolution & structure of PSC s Investigate cost recovery & profit sharing Examine fiscal mechanisms & ring fence calculations Identify taxation liability & allowances Construct a production sharing contract spreadsheet model Interpret model outputs to enhance investment decision making Who should attend Production sharing partners Economists working in the industry Business development managers Lawyers involved in the industry Analysts working in the industry Auditors working in the industry
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 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 Sliding scale fiscal mechanisms Production rate Production volume R-Factor Step versus incremental methods Sliding scale calculations and examples 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 example Case studies The economics of PSC’s Contractor cash flow Government cash flow Comparison with royal and taxation systems Case studies Day 3 Upstream economics workshop: the PSC case study Introduction to the Vietnam development, 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 Course summary and close