The user agrees that:
A PSA is a Production Sharing Agreement -- also known as a Production Sharing Contract (PSC). In many countries PSAs play a critical role in the exploration and production of oil and natural gas. A PSA largely defines the economic relationship between the government of a host country and an operating company engaged in a petroleum exploration and production project.
In a PSA arrangement the resource is owned by the state. The contractor receives a share of the production in return for services performed. In the event that production occurs, the contractor receives a "cost oil" share of production which serves as reimbursement for allowable costs incurred (e.g., drilling wells, building processing facilities, and incurring operating costs). In addition, in the event of success, the contractor also receives a share of the residual "profit oil" as compensation for the time value of money and risks borne by the contractor (e.g., the risk of little or no production).
The term "concession" implies that the investor/contractor obtains an ownership interest in mineral resources. In contrast, in a production sharing system (PSC/PSA) the state grants the investor a "license" to produce from certain resources owned by the state. Concessionary Arrangements are also known as Royalty/Tax Systems. In these systems the investor/contractor typically pays "royalties" to the state. Royalties are a share of production (taken off the top). In addition to royalties the investor/contractor pays one or more layers of income taxes. Typically, allowable deductions in the computation of taxable income include: operating costs, intangible capital costs and depreciation associated with (tangible) capitalized costs (e.g., drilling of wells, construction of processing facilities and construction of pipelines).
This site contains tools for evaluating the economic attractiveness of upstream petroleum projects (petroleum exploration, development and production). They implement and interpret discounted cash flow analysis allowing for key economic provisions commonly encountered in production sharing, tax/royalty and mixed fiscal systems. The economic models on this site have adequate flexibility to fit many fiscal systems reasonably well. However, they do not fit all fiscal systems. It is not practical to incorporate every possible permutation of fiscal system with a "one size fits all" economic model and maintain a simple user interface. Given this fact, enhancement of the models on this site might be required to handle your specific fiscal system fact pattern. Please contact us if you encounter such a circumstance. We welcome suggestions for model enhancements and we might be able to suggest compensating adjustments.
DCF techniques and presentation of results
This site implements a range of DCF techniques from simple to complex: single scenario analysis; sensitivity analysis; NPV calculations from a weighted average of scenarios; and Monte Carlo analysis across reserve and/or petroleum price uncertainty. These different techniques are designed to address different issues and appeal to different user groups.
Different tools for different user groups
The tools on this site are modular and accommodate a wide variety of user groups in a manner that facilitates communication and collaboration between user groups. Some modules are designed to appeal to petroleum technical experts (e.g., petroleum engineers) and others are designed to appeal to lawyer/negotiators. For example, users have different preferences with respect to level of detail verses ease of use. This tradeoff is especially prominent in constructing forecasts of capital expenditures (CAPEX), operating expenditures (OPEX) and petroleum production ñ- numbers that drive the fiscal system calculations and produce cash flows projections for DCF analysis. We customize our economic models to different user groups by providing three different approaches to populating these key forecast values.
First, consider the case where a government is evaluating alternative possible fiscal regimes for potential adoption. There might be no specific petroleum project that is of primary interest. The focus would be on examining how results for a hypothetical fiscal regime change as a result of changes in reserves, CAPEX and OPEX costs, and/or petroleum prices. The objective is to find a fiscal system that can produce a reasonable allocation of government verses contractor take for a wide variety of possible circumstances. These users are best served by a small set of user inputs that enable a representative range of hypothetical projects to be easily constructed. For these users we offer a streamlined approach (e.g., production is calculated from a recoverable reserves input and a few inputs that shape the production profile over time, total development capital expenditures are calculated by multiplying a $/Bbl input by the recoverable reserves input).
At the opposite extreme, consider a team of geologists and engineers that work for an oil company and are responsible for evaluating a specific project. Such teams often expend extensive effort in estimating project costs and expected future petroleum production.In many circumstances no calculation module that we could provide would be fully satisfactory. This group will want their custom and carefully constructed estimates to drive the cash flow projections. For these users we included a module that allows externally generated cost and production summary schedules to be imported into our models. In the current version they can manually input and save their annual schedules of aggregate exploration CAPEX, development CAPEX, facilities CAPEX, OPEX, oil production and gas production (a relatively small set of numbers). Automatic uploading capability from a spreadsheet is likely to be added in future versions.
Finally, we also provide a module that implements an intermediate approach. It builds the cost and production schedules discussed above from a set of project specific fundamental drivers widely relied upon in the economic models built by oil companies (e.g., the inputs include cost per well drilled, recoverable reserves, number of wells required to extract such reserves and production capacity constraints from surface facilities). Even oil company teams of technical experts might find this module adequate in some circumstances.
Enhancing communication between user groups - data sharing
Perhaps the most important potential benefit of this modular approach is enhanced communication. For example, a team of oil company technical experts can share their cost and production outputs with oil company lawyer/negotiators in an easy to understand manner. The lawyer/negotiator sees only the annual schedules of aggregate costs by fiscal category and production for oil and gas. These are the only numbers that the lawyer/negotiator needs (and wants?) to see. The technical team and the lawyer/negotiator would run this key data through the same fiscal system module for analysis. They could perform independent analysis and easily communicate their assessments of the pros and cons of adjusting specific fiscal terms during negotiations with a host government. This data sharing capability could also enhance the negotiation process between the oil company and the host government through increasing the effectiveness of communications. The oil company could choose to share one or more sets of these annual schedules of costs and production with lawyer/negotiators for the host government. Normal skepticism associated with exchanges of models and/or results would be reduced because the lawyer/negotiators for the government could analyze the shared data using a module from an independent provider. Optimal benefits will accrue if representatives of the host government are already familiar with models on this site and have had the logic validated by an independent and reliable source.
This example explains our motivation for incorporating the capability to share data sets. Specifically, if both a sender and a recipient consent then that sender becomes able to select and send copies of specific data sets to the recipient's user account. In all other circumstances every data set in a user's account is private -ñ they are not accessible from other user accounts. For example, in the description above the data sets not selected by the sender remain private. Consent to file sharing is specific to a pair of user accounts. Either party can turn off this capability at any time.
This economic analysis model is being made available for use in the hope that it will be useful, but WITHOUT ANY WARRANTY; without even the implied warranty of merchantability or fitness for a particular purpose. Results should not be relied upon by any visitor or other recipient. At present, this economic analysis model is intended for educational use only.
At present there is no charge for using the model on this site. We cannot predict how this model development project will evolve. As such, we do not guarantee that the current version of the model will always be available or that it will always be available for free. If you are concerned about the possibility of losing access to any of your work on this site please save your results using the pdf report generation capability and/or the XLS file download capability. Each pdf report contains all of the inputs and results for the model run that you select for download. The XLS download capability works similarly. Download a pdf and/or XLS file for each model run that you want to save on your own computer.
This model requires numerous data inputs. Registration enables users to store data inputs and results. This is required to implement many useful analytical features. For example, users control a private virtual space where they can compare results between runs (e.g., analyze differences between a high reserves and low reserves case). Users can store their data inputs and results between sessions. No other user has access to this private virtual space (i.e., other users cannot examine your data inputs or results on this site).
In order to register, each user must agree that this web site and the results generated are solely for educational use (e.g., no person or entity will rely on the results for any commercial purpose).
We plan to enhance the economic models offered on this site in response to user interest. Possibilities include decision analysis and option pricing theory. The models on this web site are designed and developed by Dr. Andrew C. Thompson acting in his capacity as member/manager of ACT Financial Consulting LLC. Feedback, comments and suggestions are welcome (firstname.lastname@example.org).
Dr. Andrew C. Thompson