Financial Modelling for Oil & Gas Projects

Financial modelling of oil and gas projects requires a robust and flexible approach to develop analytical functionality which addresses the needs of sponsors, investors, operators and project finance banks.

This practical training course in financial modelling includes workshop modules aimed at equipping participants with stronger skills for sophisticated analysis of oil gas projects.

Gain insights in the need for financial modelling best practice in the oil and gas sector:

• Review the 10 foundation principles of the Mazars Financial Modelling methodology and its application in the oil and gas industries
• Discuss good vs. bad financial modelling techniques, highlighted by real life example
• Learn to work with the powerful and easy to follow Mazars Financial Modelling best practice methodology
• Implement initiatives aimed at standardising your standardisation of modelling within your organisation

Workshop the life-cycle of a financial model, from project screening to debt analysis and operations:

• Review the time line for a typical project and related milestones, including equity commitment, project finance and construction
• Understand that requirements from a financial modelling perspective across this timeline
• Assess the needs for financial model functionality for various stakeholders, from project finance banks to equity sponsors and operators

Develop a structure for your financial modelling which has the features of scalability and flexibility while also allowing for powerful commercial scenario analysis:

• Map the timing of the project around critical phases, and develop a flexible timing structure using select date functions and binary flags for graphical representation
• Establish major constants in the financial model by mastering Excel’s built in Name Range functionality
• Develop calculation modules which form building blocks of a professional model including (but not limited to): Sophisticated Capital Expenditure profiles with contingencies controls, calculation of production volumes (production rate profiles; dynamic P90, P50 switching; dynamic reserve tail cut-off), valuing opening exploration losses, revenue build up with detailed pricing controls, operational and maintenance expenses including fixed and variable items; how to model variable costs such as lifting costs; escalating costs with inflation; O&M contract optionality

• Transparent methodology for creating a price from a base (Brent Crude, TAPIS)
• Include functionality for different price paths for different stakeholders
• Demonstration of hedging instruments analysis, floors, caps, collars, options
• Modelling contracted volume off-take

Make the ‘seniority of cashflows’ come to life in the cashflow waterfall to facilitate project finance analysis:

• Create transparent calculations for Cash Flow Available for Debt Service highlighting the definition and methodology
• Understand the benefits of clear calculations in the Cashflow Waterfall, and the importance of linking calculations in the financial model back to transaction documentation
• Avoid common pitfalls relating to circular references and apply best practice techniques for clear and transparent analysis

Project finance modelling – incorporate debt modelling mechanics in the model:

• Learn the essential components of debt mechanics, annuity repayments and account structures from first principles
• Expand the functionality to include a repayment functionality based on target Debt Service Coverage Ratio (DSCR)
• Review alternative repayment options including bullet and linear repayments.

Investments and project finance: develop modelling functionality for debt analysis:

• Understand how credit ratios are defined and how they are used in a credit analysis process
• Build ratio modules for commonly used ratios in banking and finance from first principles
• Review the definition of Reserve Life Cover Ratio (RLCR) and develop the calculation module
• Use advance Excel functions for extraction of key metrics from the financial model
• Discuss common project finance debt sizing methodologies

• Discuss the reason and impact of dividends policy on valuations
• Integrate internal rate of returns and NPV, understand role of the discount rate
• Learn differences between NPV and XNPV functions and common errors in their application
• Tax and depreciation – essential functionality for full analysis including tax payments:
• Learn how to model royalties; income tax; loss accounts in a structured way which can be applied to your specific situation
• Understand how reserve-based depreciation can be modelled efficiently

Take control of robust and rapid sensitivity and scenario analysis through powerful Excel techniques:

• Save time and deliver rapid analysis with our approach to scenario management
• Use the scenario manager to test the model in all scenarios
• Build confidence in your analysis through pre-programmed combinations of model inputs
• Compare different projects using the scenario manager
• Understand the impact of a construction delay upon returns