Build the Cash Flow Model Behind Your Production Profile
Reservoir Economics Using MS-Excel
Cash flow construction, cost and price treatment, royalty and tax mechanics, discounting and investment indicators, sensitivity and simple risk analysis — built cell by cell in Excel.
Reservoir Economics Using MS-Excel
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Reservoir Economics Using MS-Excel - RE-REX-PEA27
| Code | Date | Time | Duration | Location | Currency | Early Bird Fee Per Person |
|---|---|---|---|---|---|---|
| RE-REX-PEA27 | 10 - 14 May 2027 | 10 AM CST | 4 Hours Per Day |
Online |
USD |
2500 |
Boost your team's skills and your budget! Enjoy group discounts for collaborative learning. Send an inquiry to info@peassociations.com.
Reservoir Economics Using MS-Excel
Description
Every reservoir engineer eventually needs to answer an economic question. Is this infill well worth drilling. Does the workover pay back. At what water cut does this well stop making money. Should the compression project go ahead. Answering these questions properly requires a cash flow model, and building that model in a spreadsheet is well within the reach of any engineer who understands the mechanics. What stops most people is not difficulty but unfamiliarity with the conventions: how timing is handled, what goes above and below the tax line, how depreciation is applied, and why the answer changes when the discount rate does.
This course teaches the mechanics by building the model. It starts from a production profile and works forward through revenue calculation with price and quality adjustments, operating cost structure, capital expenditure phasing, abandonment provision, royalty, depreciation, taxable income and tax, net cash flow and its discounting, then into net present value, internal rate of return, payback and unit technical cost. It covers economic limit calculation and its link to reserves, sensitivity analysis and tornado charts, scenario cases, and a simple probabilistic treatment linking subsurface uncertainty to a value range. It also covers the basic mechanics of production sharing contracts so that participants working under those terms can model their own entitlement. The result is a working model participants build themselves and can adapt to their own projects.
The production profile is a technical output. The investment decision is a financial one. Between them sits a calculation that most reservoir engineers have seen the results of but never built. That gap matters, because the engineer who produced the profile is usually the person best placed to know which assumptions in the economic model are fragile, and least able to point them out if the model is a black box handed to a separate team.
The mechanics themselves are not complicated. Revenue is production multiplied by realised price. Costs are separated into operating expenditure, which is deducted as incurred, and capital expenditure, which is spent when committed but relieved against tax over a schedule. Royalty is taken off the top. Tax is applied to what remains after allowable deductions. The result is a net cash flow by period, and discounting converts that stream into a single value. Every element is arithmetic that fits comfortably on a spreadsheet.
What requires care is the conventions and the assumptions. Whether cash flow is stated in real or nominal terms, and whether the discount rate matches, changes the answer substantially. Whether costs are shared with other wells determines the economic limit and therefore the reserves. Whether the price assumption is a forecast or a screening value determines what the number means. Sensitivity analysis exists precisely because these choices matter more than the technical precision of the production profile. This course covers the mechanics and the judgement together, at a level suitable for engineers building their first serious economic models.
By the end of this training, participants will be able to:
- Construct a period-by-period cash flow model from a production profile
- Build revenue calculations including price assumptions, quality differentials and transport deductions
- Structure operating cost, capital expenditure phasing and abandonment provisions correctly
- Apply royalty, depreciation, allowances and tax to arrive at after-tax cash flow
- Model basic production sharing contract mechanics including cost recovery and profit oil split
- Apply discounting correctly and maintain consistency between real and nominal treatment
- Calculate and interpret net present value, internal rate of return, payback and unit technical cost
- Determine economic limit and use it to establish remaining reserves and field life
- Perform sensitivity analysis and build tornado charts to identify the dominant value drivers
- Link subsurface uncertainty to a value range using simple probabilistic methods
The course is delivered as a model-building programme. Each element of the economic calculation is introduced through its purpose and convention, then built into a live spreadsheet model that grows through the course from a production profile to a complete after-tax evaluation. Field examples cover single well decisions, infill projects, facility investments and full field developments. Model errors are examined directly, including timing mistakes, inconsistent inflation treatment and incorrect tax deductions, so that participants learn to check their own work and to review models built by others.
Organisations sending participants to this training will:
- Enable technical staff to evaluate their own proposals before they reach the commercial team
- Improve the quality and consistency of economic input in technical submissions
- Screen more opportunities than a central economics team can process
- Reduce late-stage rejection of technically sound proposals for foreseeable economic reasons
- Strengthen the technical understanding behind reserves and economic limit determination
- Build shared vocabulary between subsurface and commercial functions
Participants will:
- Build a complete economic evaluation model independently
- Understand how technical decisions translate into value
- Evaluate well, workover and project proposals before submitting them
- Identify which assumptions actually drive the economic result
- Interpret and challenge economic models produced by others
- Add a capability that is expected in senior technical and planning roles
- Reservoir, production and petroleum engineers
- Field development and planning engineers
- Geoscientists involved in prospect and development evaluation
- Graduate engineers building commercial awareness
- Reserves and technical evaluation staff
- Operations engineers preparing investment proposals
- Technical supervisors reviewing project economics
Module 1 — Economic Evaluation Framework
- Why technical decisions require economic evaluation
- Cash flow versus accounting profit
- Project life cycle, decision points and evaluation stages
- Incremental analysis and the treatment of sunk cost
- Real and nominal terms and inflation handling
- Model structure: inputs, calculations, results and assumptions
- Documenting assumptions and preparing a model for review
Module 2 — Production Profile and Revenue
- Converting a production forecast into an economic input
- Period selection: annual, quarterly and monthly modelling
- Timing conventions and mid-period discounting
- Price assumptions, forecasts and screening prices
- Quality differentials, gravity and sulphur adjustments
- Gas pricing and contract structures
- Transportation, processing and marketing deductions
- Net revenue calculation and point of valuation
Module 3 — Cost Modelling
- Operating cost structure: fixed, variable and per-well components
- Cost escalation and its treatment
- Capital expenditure estimation and phasing
- Drilling, facility and tie-in cost profiles
- Contingency and cost uncertainty
- Abandonment cost estimation and provisioning
- Cost allocation between wells and shared facilities
- Building a cost sheet that responds to activity changes
Module 4 — Royalty, Depreciation and Taxation
- Royalty structures and their calculation
- Deductible and non-deductible costs
- Depreciation and capital allowance schedules
- Taxable income calculation and tax rates
- Loss carry-forward and its modelling
- Special petroleum taxes and additional levies
- After-tax cash flow assembly
- Common errors in the tax section of an economic model
Module 5 — Production Sharing Contract Basics
- How a production sharing contract differs from a tax and royalty regime
- Cost oil, cost recovery ceiling and carry-forward
- Profit oil split mechanisms
- Contractor entitlement and its reporting effect
- Government participation and state share
- Modelling a simple production sharing contract in a spreadsheet
- Comparing regimes on the same production profile
Module 6 — Discounting and Investment Indicators
- Time value of money and the discounting mechanism
- Discount rate selection and its meaning
- Consistency between discount rate and cash flow terms
- Net present value calculation and interpretation
- Internal rate of return and its failure modes
- Payback, discounted payback and profitability index
- Unit technical cost and break-even price
- Choosing the right indicator for the decision at hand
Module 7 — Economic Limit and Reserves
- Economic limit definition and calculation
- Well level and field level economic limit
- Effect of shared cost and infrastructure on economic limit
- Determining remaining reserves and economic field life
- Effect of price and cost changes on booked reserves
- Abandonment timing and deferral considerations
- Link between economic limit and reserves classification
Module 8 — Sensitivity, Scenarios and Risk
- Single parameter sensitivity analysis
- Tornado chart construction and interpretation
- Spider plots and break-even analysis
- Scenario case construction and management
- Data tables for systematic parameter variation
- Distribution selection for uncertain inputs
- Simple Monte Carlo simulation of economic outcome
- Expected value and probability weighted results
- Presenting a value range rather than a single number
Module 9 — Applying the Model to Reservoir Decisions
- Infill well economics and incremental analysis
- Workover and intervention evaluation
- Acceleration versus incremental recovery
- Waterflood and pressure maintenance project evaluation
- Facility investment and debottlenecking economics
- Well abandonment timing decisions
- Comparing and ranking competing projects
- Presenting an economic case to a technical or management audience
Module 10 — Model Quality, Checking and Reuse
- Common structural errors in economic spreadsheets
- Checking timing, sign conventions and formula consistency
- Built-in checks and validation flags
- Independent verification of key results
- Documenting inputs, sources and assumptions
- Building a reusable model template
- Reviewing an economic model produced by someone else
- Preparing a model for audit and handover
Upon successful completion of this training course, delegates will be awarded an official Certificate of Completion issued by the Petroleum Engineers Association (PEA), an ISO 9001:2015 certified training organization. The certificate carries 10 Credits and formally records the total learning hours completed.
Each certificate is signed by the Course Facilitator and the CEO of the Petroleum Engineers Association, and serves as verifiable proof of professional training that delegates can present to employers and professional bodies worldwide.
Frequently Asked Questions
All course bookings made through PEA are strictly non-refundable. By registering for a course, you acknowledge and accept that all fees are payable in full and are not subject to refund under any circumstances, including changes in personal or professional commitments or partial attendance.
PEA reserves the right to make reasonable adjustments to course content, trainers, or schedules where necessary, without entitling delegates to a refund. Comprehensive details of each course — including objectives, target audience, and content — are clearly outlined before enrolment, and it is the responsibility of the delegate to ensure the course's suitability prior to booking.
For any inquiries related to cancellations or bookings, please contact our support team, who will be happy to assist you.
