Form C4
Version 4.0 (2010/2011)
Heriot-Watt University - Course Descriptor Template
1. Course
Code
2. Course
Title
G10EE
6. Course
Co-ordinator
5. School
Engineering and Physical Sciences
7. Delivery:
Location &
Semester
Edin
SBC
Orkney
Dubai
IDL
Sem 1
Sem…….
Sem………..
Sem……..
Sem….
8. Pre-requisites
3. SCQF
Level
Energy and Petroleum Business Economics
Collaborative Partner
Baku Higher Oil School, Azerbaijan
Sem 1
10
4. Credits
15
4th Year Director of Studies
Approved Learning Partner
Name …………………………………Sem………..
Satisfactory completion of Stage 3 courses
9. Linked Courses
(specify if synoptic)
10. Excluded Courses
11. Replacement Courses
Code:
12. Degrees for which
this is a core course
Date Of Replacement:
13. The course may be
delivered to:
UG only
PG only
UG & PG
BEng Petroleum Engineering
14. Available as an Elective?
Yes
No
15. Aims
The overall aim is to:
 understand the economic concepts involved in project evaluation
 understand the value of investments as defined within a fiscal system
 evaluate risks associated with economic decisions
16. Syllabus
Introduction: General financial aspects of the petroleum industry; nature and evolution of demand for oil; evolution of oil supply; role of the National Oil Company versus
International oil company; financial parameters or statistics reflecting performance of a petroleum company; principal sectors of petroleum activity
Evaluation methods: Definition of an asset; Evaluation concepts and objectives; Book value and depreciation; Market value and models; Cash flow concept - “capex” and
“opex”; Cash flow models
Time value of money: Time Value; Compound Interest; Discounting; present value of a single cash flow; Annuities; Price Inflation - Money of the day
Real terms, constant money; Purchasing power; Conversion of money of the day to real terms and vice versa
Project parameters: Cash Flow Modelling - project screening and ranking, Maximum capital outlay, Payback period, Terminal cash surplus, Profit to investment ratio
(undiscounted); Discounted Measures of Value; Net Present Value (NPV) from project cash flows; Annual Capital Charge (ACC); Internal Rate of Return (IRR); NPV and
IRR for acceleration projects; NPV, NPVI and IRR as screening criteria; NPV, NPVI and IRR as ranking criteria
Government: Importance of petroleum to government; Resource Ownership; United Nations Convention on the Law of the Sea; Petroleum licensing; forms of licensing
agreement; Petroleum Development and government concerns; definition of “good oilfield practice”; purpose of a field development programme; flaring of methane;
reservoir unitisation and describe its conceptual evolution; field abandonment; Taxation - petroleum revenues; tax-reference price; corporate taxation of project - standalone and consolidated economic models; progressive and regressive taxes
Sources of uncertainty and risk: Geology - concept of exploration success; Facilities – problems encountered in subsurface and surface; environmental issues pertaining
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Form C4
Version 4.0 (2010/2011)
Heriot-Watt University - Course Descriptor Template
to oilfield development; human failure; Government – imposition of changes to project;Describe an example of such a process; taxation policy and investment decisions;
concept and implications of demand elasticity; function of spot markets and marker crudes; oil price uncertainty; market for gas; gas sales contract; gas pricing; exchange
rate variation and influence on project economics; risk associated with borrowing money; Partners – risks associated with partnerships
Risk Management: Sources of information to reduce uncertainty; transferring risk – financial instruments and commodity trading; Diversification; joint ventures; scenario
planning; relevant information in the context of decision-making; Simple Decision Methods; sensitivity analysis; spider diagram; Monte Carlo and Latin Hypercube sampling;
Mathematical Expectation; Binomial probability Function to calculate expected value; Preference Theory; Decision Trees and value of information
17. Learning Outcomes (HWU Core Skills: Employability and Professional Career Readiness)
Subject Mastery
Understanding, Knowledge and Cognitive
Skills
Scholarship, Enquiry and Research (Research-Informed Learning)
On completion of the course, the student should be able to:
 understand the financial system within which project decisions are made
 calculate net present value, internal rate of return for a project
 use statistical techniques to assess risk associated with development of oil and gas fields
 be able to make economic decisions based on calculated risks
Personal Abilities
Industrial, Commercial & Professional Practice
Autonomy, Accountability & Working with Others
Communication, Numeracy & ICT
In this course, students will be explicitly encouraged to:
 be aware of the importance of time management;
 develop their personal skills, including an awareness of both traditional and internet-based information sources;
 develop their skills in problem solving
 use appropriate tools to make project viability and ranking decisions
 an ability to apply theoretical knowledge to practical problems.
 provide constructive feedback to teaching staff.
18. Assessment Methods
19. Re-assessment Methods
Method
Duration of Exam
Weighting (%)
Synoptic courses?
Method
(if applicable)
Examination
Coursework
2 hours
Duration of Exam
Diet(s)
(if applicable)
80%
20%
Examination
Coursework as appropriate
3
3
2 hours
20. Date and Version
Date of Proposal
13-8-2012
Date of Approval by
School Committee
Date of
Implementation
Version
Number
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