Course details

Overview ?

Introduction

Large capital-intensive projects in the oil and gas industries require substantial - and mostly risky - investments in the acquisition, exploration, and subsequent operation and maintenance of new organizational assets.

The decision whether or not to invest in new capital projects in the oil and gas industry, starts with critical decisions during the exploration phase of a new development, or the expansion of an existing field. The decision-making tools used to analyze project risk under conditions of uncertainty will help companies to determine the probability of success or loss, and will drive the decision to develop or abandon the well.

Of paramount importance therefore, is the systematic and comprehensive evaluation of potential investments, and the development of detailed cash-flow analyses to determine as accurately as possible, the expected returns to the organization under varying conditions of uncertainty over the expected productive life of the project.

This requires the development of sound, realistic, and carefully structured cash-flow projections, reflecting both the initial capital expenditures required for the acquisition of the asset, as well as the operational expenditures required for successful operation and maintenance of the asset over its anticipated productive life.

World-wide an alarming number of large capital projects fail to meet, or overrun their planned budgets, failing to realize both the financial and strategic goals of the organization - the very reason for their being undertaken in the first place - often with sizable increases in capital and operational expenditures, and with substantial financial losses to the organization. In the majority of cases, this is the inevitable consequence of failing to apply the tools and techniques of modern project decision-making, evaluation, financial planning, capital management and cash flow analysis when considering investment into new capital projects.

Objectives

By the end of this programme you will be able to:

The organization's investments in large capital-intensive projects will be safeguarded from the pitfalls that have caused substantial financial losses to many organizations due to inadequate project appraisal and financial risk mitigation strategies
Proper cash-flow and sensitivity analyses will enable the organization to forecast and control potential future conditions that might jeopardize the chances of project success, thereby maximizing the organization's return on the capital invested in projects
The emphasis given to financial evaluation in this seminar will empower staff to focus on achievement of the organization's overall strategic objectives rather than viewing projects in isolation

Training Methodology

Delegates will develop advanced financial analysis and cash flow management skills through formal and interactive learning methods. The program includes individual exercises, team projects, applicable case studies, group discussions and video material that will bring to life the skills acquired throughout the course.

The material has been designed to enable delegates to apply all of the material with immediate effect back at the office.

Additionally, the seminar does not assume prior knowledge of the topics covered in the course. New concepts and tools are introduced gradually to enable delegates to progress from the fundamental to the advanced concepts of asset-based financial engineering.

Personal Impact

Participants will enhance their understanding of the time value of money, as well as learn how to use the basic tools of financial engineering such as Net Present Value, Internal Rate of Return, and Annual Worth calculations
Participants will learn how to evaluate and compare various alternative solutions over differing time horizons
Detailed explanations of the tools and techniques to determine and continuously monitor project feasibility, will enable participants to select projects with the best capital investment potential
Participants will learn how to plan, structure and manage cash flows on their projects - the single most important forecasting and control element leading to project success

Organisational Impact

The organization's investments in large capital-intensive projects will be safeguarded from the pitfalls that have caused substantial financial losses to many organizations due to inadequate project appraisal and financial risk mitigation strategies
Application of sound project appraisal and quantification techniques will enable the organization to forecast and control potential future conditions that might jeopardize the chances of project success, thereby maximizing the organization's return on the capital invested in projects
The emphasis given to decision analysis and economic evaluation in this seminar will empower staff to focus on achievement of the organization's overall strategic objectives rather than viewing projects in isolation

SEMINAR OUTLINE

Day - 1 : Fundamentals of Decision Analysis

Introduction to PM Decision Analysis
- What is Project Management Decision Analysis?
- The need for systematic PM Decision Analysis
- Risk and Uncertainty on projects
- Identifying all possible outcomes
- Identifying key decision-making factors
Measures of Project Profitability
Fundamental tools of engineering economics
Time Value of Money
- Simple and Compound Interest
- Interest rates
- Future value of a present sum
- Present value of a future sum
Appraisal Methods - Discounted Cash Flow Projections
Net Present Value Analysis (NPV)
Comparing Projects with Equal Lives
Comparing Projects with Unequal Lives
Time Equivalence

Day - 2 : Rate of Return and the Cost of Capital

Rate of Return Computations (IRR)
Determining the Internal Rate of Return (IRR)
IRR for a Single Project
- IRR for a Single Project Using Present Worth
- IRR for a Single Project Using Annual Worth
Incremental Analysis
Mutually Exclusive Projects
Using IRR to Analyse Options with Different Lives
Cost of Capital Computations
The Cost of Debt Capital
The Cost of Equity Capital
Weighted Average Cost of Capital (WACC)
Financial Gearing (Structuring)
Capital Asset Pricing Model (CAPM)
Costs, Benefits, and Non-benefits
Estimating the Benefit-Cost Ratio for a Single Project
Comparing Mutually Exclusive Projects Using Incremental Benefit-Cost Ratios
Estimating the Cost of Capital for a Project
Benefit-Cost Ratio (BCR)