Petroleum policy and resource management: Overview and introduction to the course

Erik Jarlsby, Ph.D

jarlsby@online.no

Photo: BP

Petroleum policy and resource management: Overview and introduction to the course
Erik Jarlsby, Ph.D

1. The challenge: Managing petroleum resources

2. The course: Contents Overview 3. You & the course: The learning experience

Petroleum Policy & Resource Management: Introduction

Petroleum .........
An exhaustible natural resource A key input to modern society

Photo BP

Deep underground Generated over many million years

A source of energy Also a raw material (plastics etc)

Finite quantities *)
Unevenly distributed in the world
*)

High consumption in developed economies Creates environmental concerns

Subject to definitions, discoveries, technology

Petroleum Policy & Resource Management: Introduction

The petroleum industry

Getting oil & gas from reservoirs to users

Upstream: Oil & gas out of the ground

Exploration - Development - Production - Decommissioning

Downstream: Making oil & gas useful

Transport - Refining - Retailing - (Petrochemicals)

Who:
Large and small petroleum firms State owned and non-state petroleum firms Upstream, downstream and integrated petroleum firms
Photos BP, Shell

And many more ...

Petroleum Policy & Resource Management: Introduction

Exploiting petroleum can create affluence ..........

Stavanger Norways Government pension fund global:

US$ 749,596,814,007

September 4, 2013

Petroleum Policy & Resource Management: Introduction

.... but petroleum can also be accompanied by misery

Petroleum Policy & Resource Management: Introduction

Resource management gone wrong: Many pitfalls

Loss of lives and value through disasters
Environmental damage through accidents and low standards Armed conflict triggered by resources Misappropriation of value through corruption and power abuse Imbalanced appropriation of value between (foreign) enterprises and nation Wasted expense through poor investment decisions

Wasted resources through inefficient operations

Short-lived benefits: Boom and bust

Erosion of the non-petroleum manufacturing base

Loss of opportunity through failure to attract investment

Petroleum Policy & Resource Management: Introduction

Cursed by resources ?
United States Japan

Bangladesh

Nigeria

The value chain of petroleum exploration and production What are we trying to do in the petroleum business ?
Benefits
Lasting benefits for society Commercial profit

Natural and social ENVIRONMENT

Regulatory management (Government) Licensing and Exploration Tail End and Abandonment

Development

Production

Business management (Companies)

Natural and social ENVIRONMENT

Oil & gas resources

Petroleum Policy & Resource Management: Introduction

Two important premises for PETRADs courses: Resources are no curse. Properly managed, petroleum brings lasting benefits to the nation.

Authorities and enterprises both have important roles in petroleum. An industry governed by regulations and markets

NATIONAL AUTHORITIES

PROFIT-SEEKING ENTERPRISES

Petroleum Policy & Resource Management: Introduction

Rising to the challenge: The need for insight

The petroleum value chain
The natural resources & what industry does with them

Conditions for creating economic value

Resource management
Securing benefits for the nation

Petroleum policy and resource management: Overview and introduction to the course
Erik Jarlsby, Ph.D

1. The challenge: Managing petroleum resources

2. The course: Contents Overview 3. You & the course: The learning experience

Petroleum Policy & Resource Management: Introduction

Petroleum policy and resource management:

Converting resources in the ground to economic and social wealth.

NATIONAL PERSPECTIVE

COMMERCIAL PERSPECTIVE

Our aim: Enable participants to make professional contributions to regulatory or commercial endeavours concerning hydrocarbon resources

Petroleum Policy & Resource Management: Introduction

Objectives for the course in Petroleum Policy and Resource Management

The main objective of the course in Petroleum Policy and Resource Management is to strengthen the participants capabilities for contributing to the effective management of petroleum resources in a context which involves commercial enterprises, national authorities and civil society. The course aims to enable participants as follows:
1) Understand the petroleum value chain in terms of the main activities required to find, produce and sell petroleum.

2) Understand the key responsibilities of national authorities and commercial firms for petroleum activities in a modern regulatory framework.
3) Understand the essential geological conditions of petroleum resource formation.

4) Understand the processes of licensing and development planning in national petroleum resource management.
5) Understand the essential requirements for protecting peoples health, safety and security, and protecting the environment from the potential negative impacts of petroleum operations. 6) Understand the common methodology for assessing the economic attractiveness of petroleum activities, including the implications of fiscal terms and uncertainties.

7) Understand common contracts for licensing petroleum rights to commercial firms.

8) Recognise the main impacts of petroleum activities on society and the requirements for transforming petroleum resources into lasting benefits for society. 9) Contribute effectively to solving complex tasks in a multi-disciplinary team context.

Petroleum Policy & Resource Management: Introduction

The course is structured to follow the petroleum project life cycle

Policy and context

Regulatory management (Government) Licensing and Exploration Tail End and Abandonment
DOWNSTREAM BUSINESSES: Marketing and utilisation of oil and gas

Development

Production

Business management (Companies)

Capabilities and human resources

Petroleum Policy & Resource Management: Introduction

Our two courses emphasize different parts of the value chain

Emphasis of the Policy course
Policy and context

Emphasis of the Operations course

Regulatory management (Government) Licensing and Exploration Tail End and Abandonment
DOWNSTREAM BUSINESSES: Marketing and utilisation of oil and gas

Development

Production

Business management (Companies)

Capabilities and human resources

Petroleum Policy & Resource Management: Introduction

Regulatory management (Government) Tail End and Abandonment

Licensing and exploration

Licensing and Exploration

Development

Production

Business management (Companies)

LICENSING: Establishing rights & conditions to exploit petroleum

- A process involving sovereign power & petroleum firms - Result: Rights and obligations

EXPLORATION: Identifying petroleum resources

- Applying techniques: Seismics, drilling, data interpretation - Result: Information (Basis for decisions on further investment)

Petroleum Policy & Resource Management: Introduction

Understanding the underground

What is down there ?

What kind of rock structures ?

How did the rocks develop over 500 million years ?

How & where could petroleum have been formed ?

Where can petroleum be trapped ?

What limits the extent of petroleum ?

Will the rocks release petroleum ?

How can we get valuable information at affordable cost ?

Petroleum Policy & Resource Management: Introduction

Offshore exploration:

Drilling a well ....

... may easily cost $50 million
... often >80% probability of non-discovery
(not finding anything worth producing)

... is necessary for any petroleum development to proceed

Implications: Information is the object of exploration: Essential & costly Combine techniques: Improve chance of success at affordable cost Balance risk & reward in the licencing process

Petroleum Policy & Resource Management: Introduction

Some lecture topics on exploration

Petroleum generation, basin formation and reservoir description: How hydrocarbon resources are formed in the underground. Play analysis, resource assessment and exploration strategies: Methods for assessing the resource potential. Resource reporting, analysis and prognosis: Keeping track of resources Prospect evaluation: Analyzing exploration data.

Exploration economics: Assessing potential value vs risk and cost

Introduction to GeoX: A computer program which you will use for the case work. Data management: Important considerations for managing valuable information from exploration.

Petroleum Policy & Resource Management: Introduction

Licensing
Establishing rights to explore for petroleum Balancing the interests of nation and firms

NATION

COMMERCIAL FIRMS

National interests: ATTRACT capable petroleum firms MAXIMIZE value of resources APPROPRIATE benefits for nation PROTECT societal interests

Firms interests: ACCESS to valuable resources MAXIMIZE economic value to firm BALANCE risk & potential reward ALLOCATE resources globally

Petroleum Policy & Resource Management: Introduction PRODUCTION SHARING CONTRACT

Lecture topics on licensing

and related regulatory framework

THIS CONTRACT is made and entered into this 15th day of October, 1999, by and between the Government of Eureka, acting through the Ministry of Energy (hereinafter called Government) , and Elephant Oil Eureka (hereinafter called Contractor), a corporation duly organised and .... existing under

Production sharing agreements and other petroleum contracts: Awarding petroleum rights by contract between Government and firms.
Oil company strategy for resource acquisition: A case study on Centrica in Norway OILSIM: A team game simulating a licensing and exploration process. Determining factors in exploration investments: Understanding what is important for the oil firms

Pre-licensing preparations: Acquiring information on the underground before grainting petroleum rights to firms.
Promotion: Marketing your countrys oil potential to international companies Licensing strategy and process: Agreeing petroleum rights between State and firms Negotiating petroleum rights: Aligning the interests of State and petroleum firms

Petroleum Policy & Resource Management: Introduction

Regulatory management (Government) Tail End and Abandonment

Development
Installing the facilities to produce

Licensing and Exploration

Development

Production

Business management (Companies)

Must perform the key production functions: WELLS to access hydrocarbons in underground; injection for pressure management PROCESSING to transform the wellstream into oil & gas that can be exported OFFTAKE; bringing the products to market (pipeline and/or ship terminal) SUPPORT FACILITIES: Supply logistics, safety, environmental protection, quarters, ....

Petroleum Policy & Resource Management: Introduction

Petroleum development: Some challenges

Often multi-billion $ projects
Increased contractor costs in recent years

Tampen area development (Norway) Illustration: StatoilHydro

Choice of concepts:
Strategy for high recovery of reserves Fast or extended production profile ? Gas processing & utilisation Stand-alone or linked with other developments ? Where to locate terminals, pipelines, ....

Complex decision and approval processes Project execution & contracting strategy

Petroleum Policy & Resource Management: Introduction

Lecture topics on development

Introduction to petroleum development and operations
Plan for development and operations: Authorities perspective

Introduction to the management of large petroleum projects

Procurement of goods and services

Natural gas: Applications and markets (2 lectures)

Overview of the petroleum downstream sector

Petroleum markets and price developments

Introduction to project economics

Introduction to petroleum company finances

Evaluating petroleum projects

Decision support under uncertainty

National equity participation and Local content
Pipeline construction onshore. Photo: Gassco

Petroleum Policy & Resource Management: Introduction

Regulatory management (Government) Tail End and Abandonment

Production
Realize the value Protect lives & environment

Licensing and Exploration

Development

Production

Business management (Companies)

Some challenges: Extracting value from the underground Conducting safe & efficient operations Maintaining facilities for the long haul Additional or modified developments After completed production: Remove and restore

Petroleum Policy & Resource Management: Introduction

Lecture topics on production and abandonment

Introduction to petroleum field operations Decommissioning, removal and clean-up
Ekofisk field installations, Norway Photo: Leif Berge / StatoilHydro

The Operations course covers these issues more fully

Petroleum Policy & Resource Management: Introduction

Policy and context

Regulatory management

Capabilities and human resources

The capacity to perform

The value chain

Business management

Capabilities and Human Resources

Lecture topics:
Industry relationships: Employers, trade unions and authorities Capacity building in the petroleum sector Management skills: Working with people, making presentations Team development: Preparing to work in teams for the course

Petroleum Policy & Resource Management: Introduction

Policy and context

Regulatory management

Context and regulatory management

The wider context The ground rules

The value chain

Business management

Capabilities and Human Resources

1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8

Global energy perspectives: International energy sector developments; dilemma of energy and climate. Petroleum sector policy: The challenge of achieving lasting benefits; resource management; contents of petroleum policy. Petroleum legislation: The legal structure of national petroleum governance. Petroleum sector organisation: The structure of public institutions for managing petroleum resources. Licencing regime and fiscal regime: Systems for granting rights for petroleum operations and for sharing the value of petroleum between State and firms. Financial management and integrity: State management of revenues from petroleum. Managing the macro economic impact. Efforts to prevent corruption. Safety management: Regulatory and business management of safety, risk assessments Environmental management: Environmental policy considerations, legal framework and governance, risk analysis, oil spill contingency, EIA, SEA.

Petroleum policy and resource management: Overview and introduction to the course
Erik Jarlsby, Ph.D

1. The challenge: Managing petroleum resources

2. The course: Contents Overview 3. You & the course: The learning experience

Petroleum Policy & Resource Management: Introduction

The course consists of ....

Classroom lectures
Listen actively Your questions, comments Practices Focus

Case work

A simulated challenge of resource management and exploation assessment

Excursions and events

Challenge & learning reviews

Petroleum Policy & Resource Management: Introduction

Lectures programme structure

Each lecture ... ... is part of a module ... ... which are organised into 5 main sections of the course
1 Policy and Main Framework 2 Exploration & licencing 3 Development 4 Production 5 Human resources
1.8 Petroleum project econonomics 1.6 Governance in in the petroleum s 1.6 Governance the petroleum 1.6 Governance in the petroleu
1.8.3 petroleum projects 1.6.2 Evaluating Revenue Management

The Policy and Operations courses have similar modules but different lectures. Some lectures are common.

In addition: Case work, excursions country presentations, events

Petroleum Policy & Resource Management: Introduction

The 3 levels of skill

Objectives for each module 1 = Capability Student to have the knowledge required to perform independent professional work on the subject matter. (Additional on-the-job exposure may be required before the student can fully assume responsibility for work results.) 2 = Understanding Student to be able to identify, describe, evaluate and discuss the implications of the subject matter in a practical context. 3 = Recognition Student to be aware of the subject matter and recognise its relevance in a practical context.

Petroleum Policy & Resource Management: Introduction

Documentation will be provided for most lectures

Slide handouts Accompanying articles

Look to Sharepoint for schedule and documentation

Petroleum Policy & Resource Management: Introduction

Learning objectives are defined for each lecture

Example
Lecture 3.6.1 Introduction to project economics Learning objective:
Understand key terms in cash flow analysis: Cash flow, Net present value, Internal rate of return, Discount rate. (Level 2) Be able to conduct an economic analysis of a simple investment project (Level 1)

Levels for learning objectives:

Level 1 = Capability (Knowledge required to perform) Level 2 = Understanding (Describe, evaluate, discuss) Level 3 = Recognition (Awareness; recognize relevance)

Petroleum Policy & Resource Management: Introduction

Your challenges
You were asked to define: Which are the most important challenges, problems and questions in the petroleum sector and its administration of your country?

What challenges should you DO something about after the program?

During the course you will: Use lectures, discussions etc as means of preparing to meet your challenges Have some guidance from Petrad, but success is your own responsibility

Petroleum Policy & Resource Management: Introduction

Thought you were going on vacation ? Wrong.

Lectures: 4 x 90 minutes (daytime) + some evenings Case work: All contribute Excursions Many evenings & week-end days Country presentations are scheduled Social events or will be required for case work

Petroleum Policy & Resource Management: Introduction

YOU
are responsible for learning.
You are also expected to support other students in their efforts to learn.

WE
(Lecturers and PETRAD staff) are here to assist. Good luck !

PETRAD
Norwegian International Programme for Petroleum Management and Administration
PETRAD, Prof. Olav Hanssens vei 10, P.O. Boks 598, 4003 Stavanger, Norway. Tel: 51876000 Fax: 51876428 E-mail: petrad@petrad.no Web page: www.petrad.no