Risk Analysis Prospect Evaluation and Exploration Economics

Risk Analysis Prospect Evaluation and Exploration Economics

Course Description

 The course assumes basic or no previous knowledge of uncertainty, risk analysis or decision analysis; although preliminary to intermediate knowledge of exploration, production and development of oil and gas fields is required. Advanced knowledge is a plus. The course is designed for professional petroleum industry personnel. Both upstream and downstream industry workers will benefit from the workshop. Fundamental risk and decision analyses tools will be thoroughly covered and their applications and implementations will be explained.  Case studies and strategy developments through utilizing traditional and non-traditional techniques will be exercised during the workshop. Monte Carlo simulator is used for risk analyses.

Learning Outcomes: 

After completing this course, participants will understand uncertainties surrounding the petroleum industry and the consequent magnitude of the risk taken to invest in this vibrant industry. They will learn how to identify, quantify, and analyze risk parameters contributing to risking any of the decisive key economic indicators, like NCF,  IROR, Pay Out Time, Maximum Exposure, Maximum Surplus, STOIIP, GIIP, Revenue, RF, CAPEX, OPEX, Oil & Gas Prices etc. Also, they will be comfortable to use at least one of the commercial risk analysis simulators (Monte Carlo); @Risk, Crystal Ball, etc.

Course Outline:

Day 1: 

  • Petroleum Industry Overview 
  • Economic Equation 
  • Implications of Uncertainty, Risk Analysis and Decision Analysis 
  • Risk Versus Uncertainty 
  • Investment Decision Making 
  • RQP 
  • Phases of a Typical Risk Analysis Petroleum Project 
  • Utilization of Monte Carlo Simulator 
    • Identifying the Risk 
    • Checklist of every risk identified 
    • Quantifying the risks 
    • 3X3 Matrix 
    • Theoretical Background to quantifying Risks 
    • Risk Distributions 
    • Risk Parameters 


  • Types of Distributions Used for Risk Analysis 
    • General guide to when to use which distribution 
  • Historical Data versus Expert Opinion 
  • What is correlation? 
    • Quantifying Correlations 
  • Separating Risks out 
  • Issues to Consider When Evaluating Risks with Experts 
    • Experts’ Reluctance to Provide a Distribution 
  • Group Dynamics of Quantifying Risks 
    • Psychological Factors 
  • Risk Analysis 
    • What is Monte Carlo Simulator? 
    • Influence of Uncertainty and Risk Analysis on model Design 
    • Non-Logic Scenarios During Modelling Process 
    • Set-up Distributions in the Spreadsheet 
    • Number of Iterations Required? 
    • Latin Hypercube Sampling 
    • The Random Number Issue 
    • Identifying Significant Risks 
  • Crystal Ball Sensitivity Function 
  • Simple Sensitivity Function 
  • Enhanced Sensitivity Analysis 
    • How to Reduce and control the Risk for new fields/brownfields 


  • Presenting Results 
  • Graphical Form 
  • Statistical Measures 
  • Laymen’s Terms of Risk 
    • Beyond Presentation 
    • Categories of Generic Risks 
  • Economic Indicators 
    • ROI (Rate of return) 
    • IROR (Internal Rate of Return) 
    • NPV (Net Present Value) 
    • Economic Yardstick 
    • POT (Payout Time) 
    • Minimum Bailout Period 
    • Financial Ratio 
    • Book Profit 
    • Book Rate of Return 
    • The Concept of Utility 
  • Net Cash Flow Analysis 
    • Cash Flow Diagram 
    • Petroleum Industry Project Net Cash Flow Components 
    • Petroleum Industry Cash Flow Spreadsheets 
    • Establishment of Production Profile 
  • Exploration Stage (before drilling) 
  • Appraisal Stage 
  • Development Stage 
  • Plateau Stage 
  • Post Plateau Stage (DCA) 
    • Additional Cash Flow Consideration 
    • Taxation 
    • Effect of Inflation 
    • Modeling Escalation of Prices Under Inflation 
    • Energy Price Modeling 
    • Reserves Definitions and Implications 
    • Case Studies & Applications 


  • Decision Analysis 
    • Cumulative Frequency Distributions 
  • Single Value Parameters of Distributions 
  • Measures of Central Tendency 
  • Measures of Variability 
    • EMV (Expected Monetary Value) 
  • Steps to Calculate EMV 
    • Decision Tree 
  • Steps to Use Decision Tree Analysis 
    • Petroleum Fiscal System 
  • Petroleum Industry Contracts and their Mechanisms 
    • Concession Type Contract 
    • Production Sharing Type Contract 
    • Service Contract 
  • Reserves Definitions 

Day 5 

  • Case Studies & Applications


Class lectures / Case studies / Group exercises / Software usage

Targeted Audience:

Both upstream and downstream professionals would benefit from such workshop, in addition to all management levels.

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