Petroleum economics
The value of petroleum extraction
Petroleum operations tend to generate large expenditures and even larger revenues. The economics of petroleum extraction differs from most other businesses in important respects, starting with the reality that it draws on resources in the ground that belong to the host nation and can be used only once.
The market price of crude oil (graph on the left) is a major determinant of the value that can be obtained from petroleum extraction. It is also practically impossible to predict reliably. This is one of several sources of large uncertainty that firms and governments must content with.
Training on petroleum economics
Understanding petroleum economics is important for handling several aspects of the petroleum sector: For investment decisions having far-reaching consequences; for fiscal design that divides the value of oil and gas between the state and the oil firms; for reporting and compliance to correctly capture monetary value; and for value chain development to configure organizations, work processes and transactions.
Other course providers tend to cover petroleum economics from the commercial perspective of oil companies. Our training also adopts the societal perspective of nations having petroleum resources. We provide training that is relevant for civil servants as well as professionals working with oil companies. We also have participants from other firms (suppliers, finance), civil society and universities.
Our coverage on petroleum economics focus on the four topical fields listed below, each having a link to a separate page with more information.
The economics of petroleum investment decisions. Decisions to invest in exploration or in developing petroleum resources must be informed by economic analysis based on well founded methodology adapted to the particular conditions of the sector. Link to separate page
Petroleum fiscal systems are the arrangements by law or by contracts to divide the value of petroleum between the host nation and the oil firms. The arrangements differ greatly between jurisdictions, but must address a set of common challenges. Link to separate page
Value verification. Agreements between host nations and oil firms, and those between several oil firms participating in a venture, have provisions for assigning value to revenues and expenditures. There is a need for arrangements for verifying these values. Link to separate page
The value chains for oil, gas and the wider energy sector. The "upstream" (exploration and production) part of the petroleum sector generally ends where the extracted oil and gas can be delivered to buyers. An integrated view is sometimes needed on the onward transportation, trade, processing, and final use of oil and gas, their interactions with other parts of the energy system, climate concerns, and the potential for involving the local workforce and businesses in petroleum operations (Local content). Link to separate page
Dr Erik Jarlsby is our lead partner on petroleum economics. Inquiries may be directed to him.