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NPV ( Net present value )
EMV ( Expected monetary value)
DPI (Discounted Profit to Investment ratio)
IRR (Internal rate of return)
ROR (rate of return)
Payout time
Saving Index
Sensitivity Analysis
Decision-making criteria used
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Key performance drivers
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EROI: The Key Variable in Assessing Alternative Energy Futures?
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and Risk/Reserve Position(An Inverse Relationship for Private
Investment)Worldwide riskcapitalEquilibrium:
capital willflow to highrisk/policyconstrainedlocation butwith
substantial riskpremiums
U.S
GOM Deep
E. Canada
Angola
Brazil
Colombia
India Mexico
Norway
China
Venezuela
Saudi Arabia
Risk/Reserve Position
FSU
Favorable
Favorable
GovernmentPolicies(CommercialFramework)
Source: Michot Foss 1999
Non-attainment area ofhigh risk/reserve
position and favorablepolicies
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Monte-Carlo (Reserves)
Decision Trees (EMV)
Scenario PlanningPortfolio Theory (investment)
Option theory (Development)
Analytic hierarchy processPreference theory (Cost of information)
Decision Making Tools
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Multi-stage Decision Process
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CONTRA
CTOR
ENTITELE
MENTS
RENT
EXPLORATION COSTS
DEVELOPMENT COSTS
OPERATING COSTS
CONTRACTOR TAKE
C
OS
T
S
GOVERNMENT TAKE(Bonus, price discounts royalty, taxes)
PROFIT
G
R
O
S
S
R
E
V
E
NU
E
S
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Competition betweencountries
Competition between
companies
Competition between
projects within
companies
Competition with other
energy resources
Competition with other
industries
Global competitive framework
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Capital Market
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Figure 7: Minimum dry hole cash flow requirements per barrelReserves Bcf 29 58 145 290 580 870 1,160
Reserves Mboe 5 10 25 50 100 150 200
POS Dryholes MUS$ (Exploration Costs =$/boe)
50% 1.0 40 8.0 4.0 1.6 0.8 0.4 0.3 0.2
33% 2.0 80 16.0 8.0 3.2 1.6 0.8 0.5 0.425% 3.0 120 24.0 12.0 4.8 2.4 1.2 0.8 0.6
20% 4.0 160 32.0 16.0 6.4 3.2 1.6 1.1 0.8
10% 9.0 360 72.0 36.0 14.4 7.2 3.6 2.4 1.8
5% 19.0 760 152.0 76.0 30.4 15.2 7.6 5.1 3.8
Note: dry hole cost per well assumed MUS$ 20 including G&G
Impact of exploration Risk
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Figure xxxx: Maximum Government Take at $ 7/mmbtu gas priceCrude oil price $/barrel 50.00
Gas price as % of crude oil % 80.00%
Boe/kcf 6.25
Heating value mmbtu/kcf 0.950
Gas price $/mmbtu 6.08
Reservoir Size Bcf 1,000 1,000 1,000 1,000 1,000
Costs $/boe 15.00 12.00 10.00 8.00 5.00Gross Revenue MUS$ 5,776 5,776 5,776 5,776 5,776
Capex (40%) MUS$ 960 768 640 512 320
Opex (60%) MUS$ 1,440 1,152 960 768 480
Total Costs MUS$ 2,400 1,920 1,600 1,280 800
Divisible Income MUS$ 3,376 3,856 4,176 4,496 4,976
Corporate Take (CT) MUS$ 2,400 1,920 1,600 1,280 800
Government Take (GT) MUS$ 976 1,936 2,576 3,216 4,176Corporate Take (CT) % 71% 50% 38% 28% 16%
Government Take (GT) % 29% 50% 62% 72% 84%
Government take at different prices
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Figure xx: Take at different oil prices F igure xxx: GT at different coststructures
20%
58%
78%80%
17%22%
28%
42%
72%
83%
10%
20%
30%
40%
50%
60%
70%
80%
90%
50 75 100 125 150
Oil Pric es=($/bo
Corporate Take (CT) Government Take (
4 5 %
58 %
69 %
8 3%8 3 %8 7 %
89 %
2 0 %
9 1 %9 5 %
0 %
2 0 %
4 0 %
6 0 %
8 0 %
1 0 0 %
1 5 1 2 1 0 8 5Cost=($ /bo
GovernmentTake
(%)
Go vernm ent Take a t $50/ba
Go vernm ent Take a t $150/b
Government Revenue:
at difference cost and price structure
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NPV of reserve over production cycleEffective production cycle on NPV
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Slabs Slabs Weight Bidder 1 Bidder 2 Bidder 3>0-50 50 0.400 100% 95% 85%>50-75 75 0.300 50% 45% 75%>75-100 100 0.150 40% 35% 50%>100-125 125 0.100 25% 20% 25%>125
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Modern tragedy of Contradictory Laws
IntegralSystem
MoralLaws P
hysica
l
Laws
E
co
nomic
Law
s
Self-Centered
Inte
res
t/gam
bli
ng
QuickU
sage
Collectivewellbeing
Divine laws (Perpetual)
Capitalist laws (Today)
Sustaina
bility
Tra
de
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" PULITZER PRIZE " winning photo taken in 1994 during the Sudan famine.The picture depicts a famine stricken child crawling towards an United Nations foodcamp, located a kilometer away.The vulture is waiting for the child to die so that it can eat it. This pictureshocked the whole world. No one knows what happened to the child, including thephotographer Kevin Carter who left the place as soon as the photograph was taken.Three months later he committed suicide due to depression.
http://www.huaren.com/UnitedNations/photo-2.htmhttp://www.huaren.com/UnitedNations/photo-2.htmhttp://www.huaren.com/UnitedNations/photo-2.htmhttp://www.huaren.com/UnitedNations/photo-2.htmhttp://www.huaren.com/UnitedNations/photo-2.htmhttp://www.huaren.com/UnitedNations/photo-2.htmhttp://www.huaren.com/UnitedNations/photo-2.htmhttp://www.huaren.com/UnitedNations/photo-2.htm8/8/2019 Financial Mathematics Presenation_IoBM
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natural curve(natural resources)
linear curve(machines)
exponential curve(money)
Time
Growth
Basic types of growth patterns
a
c
b
Interest growth
vsNatural growth
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Regressive Vs Progressive
Types of taxation Structures
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Petroleum Fiscal SystemsPetroleum Fiscal Systems
ConcessionAgreementsConcessionAgreements
Production SharingAgreements
Production SharingAgreements
ServiceAgreements
ServiceAgreements
PureServicePure
ServiceRisk
ServiceRisk
ServiceHybridHybrid
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Greatest Threat to Life: Food ScarcityWe are eating oil!!!!!
from planting, irrigation, feeding and harvesting,through to processing, distribution and packaging.In addition, fossil fuels are essential in theconstruction and the repair of equipment andinfrastructure needed to facilitate this industry,including farm machinery, processing facilities,
storage, ships, trucks and roadsPesticides (Gas)
"You are basically treating the agricultural environment
as if it was a factory where you are making televisions
or VCRs,if nature is not a machine, if organisms are not
machines, then to treat them as if they are, is going to
create big problems."Martha Crouch
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GlobalizationDeregulation
Concentration
MARKETECONOMY
Small & Local
CAPITALISTECONOMY
Large & Global
Global Financial System
Global Corporation
Culture &Choice
Rules
People
Ownership
POWER SHIFT:PEOPLE GLOBAL FINANCE
Culture &
Choice
Rules
LocalEnterprises
People
Ownership
Source: Life after the Dominance of Capital, by David C. Korten
http://www.bke.hu/~kg_korny/altern/korten/kortpres.html
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Framework of integrated human ecosystem
SocialProcess
Demography
Technology
Economy
Institutions
Culture
Information
EcologicalProcess
Primaryproduction
Populations
Organic matter
Nutrients
Disturbances
Biggest tragedy of our time is that modern priests (economists) do
not know that something must be physically possible before it can beeconomically possible.
External Biological, Geological& Physical Conditions
External Political &Economic Conditions
Interactions
Land useLand cover
Production
Consumption
Disposal
HumanSystems
NaturalSystems
Wh h t ti ?
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Real PriceCosts component $/bbl
Exploration 2
Development 4
Production 3
Distribution 2
Taxes 4
Profit 3
Sale price 18
1 E n er gy c o nte n t 5 ,8 0 0,0 0 0B T U /B a rr
2 H um an O utput 25 0 BT U / H o u
3 H um an E nergy 2 3,20 0Hours /Ba4 H um an wa ges 8 U S$ / H o u5 H u m a n cos t 1 8 5 ,6 0 0US$ /ba r r
6 E xchan ge ra te 8 0 Rs /US$7 C o n v ers io n f ac to r 1 5 8.9 8 7Litre/barr
8 R e p la c em en t V a lu e 1,1 6 7US$/l i t re9 R e p la ce m e nt Va lu e 9 3 ,3 9 1Rs/l i tre
Present Price
Why so much automation?
Oil is not priced rightly
A big part is our habit of treating consumption of our stocks of non-renewable resources as pure
income -- and likewise treating our unsustainable draw of renewable resources as pure income. For
example valuing forest products as equal to the cost of extracting them, is like valuing our life
savings by the cost of driving to the bank to withdraw them.
C
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Divine Economic Constitution:Economic Democracy
Earning Side
State ()Distribution
Individual ()Frugality & Sharing
Usage Side
(Tauba 34-35)
))34
But if you do not stop taking usury, then be ready for war
with Allah and His Messenger
(Baqra 279) Allah has allowed business and forbidden usury
(Baqra 275)
They ask you how much they should spend; Say: "What isbeyond your needs." Thus Allah makes clear to you Hisrevelations: In order that you may ponder. (Baqra 219)
(Baqra 219)
in order that wealth may not become confined to therich amongst you.
(Hashar 7)
Business
Usury
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IndividualDistribution
(Arteries)
StateCollection &
Re-distribution
(Veins)
Economics: A life blood system of Society
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Wood
Labor
Domesticated
Animals
Lifecycle is no more sustainable
0%
20%
40%
60%
80%
100%
1850 1870 1890 1910 1930 1950 1970
Fuel
Labor
Animals
Energy isnow
life blood ofeconomy
6000 products(Fertilizers &
pesticides!!!!)
Oil is capitalism's crack cocaine
Stacked presentation of work done over time in
United States by labor, Domesticated animals, Fuelsas a percentage of Total Horsepower in the Economy
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World oil & Gas Outlook
M j bl f H it
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Profound change in the underlying dynamics:
Money and credit rather than goods/services had become the real economyEnergy and automation has become real contributor rather than manpower and animals
Organic Resources
(Manpower, animals, plants)
Inorganic Resources
(Natural Resources)
Taxes ()
Money ()
Credit ()
Gov. Deficit ( )
Operates underphysical/biological constraints
Operates under unconstrainedcompound interest rate growth
Matter ()Natural (Real) Economy
Money ()Financial (Shadow) Economy
Major problem of Humanity:Operating under incompatible Systems
Biology/natureMechanics/cancer
I ibl (Fi i D i i )
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Wayne A.M. Visser and Alastair McIntoshhttp://www.che.ac.uk/publications/usury.htm
Organisations in the West with money to invest, especially those which like toconsider themselves as being ethical, might have rather more to learn from Islamthan is generally acknowledged. By applying the Islamic approach, a lot of humanmisery could have been avoided.
8%
Year Kg (Gold, Sliver or any other commodity)0 1
200 4,838,950400 23,415,433,085,206600 113,306,100,207,918,000,000800 548,282,506,567,769,000,000,000,000
1000 2,653,111,407,564,170,000,000,000,000,000,0001200 12,838,272,344,326,700,000,000,000,000,000,000,000,0001400 62,123,752,631,416,000,000,000,000,000,000,000,000,000,000,000
1600 300,613,707,008,236,000,000,000,000,000,000,000,000,000,000,000,000,0001800 1,454,654,572,742,820,000,000,000,000,000,000,000,000,000,000,000,000,000,000,0002000 7,039,000,140,947,130,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000
5,972,000,000,000,000,000,000,0001,178,667,136,796,240,000,000,000,000,000,000,000,000,000
1 Kgin year 1Massof earthNo of
earthsKgs inyear 2000
Interest
Rate (8%)
The economist sees economic activity as a function of infinite "money creation",
rather than a function of finite natural resources".
1
Impossible (Financing Decisions)cc
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Weight of futur
use @10%
Quantity
required for
future)
Today's Value
of future
Production4 5 (2x4) 6(3x4)1.000 100 1,000
0.636 64 636
0.361 36 361
0.205 20 205
0.116 12 1160.066 7 66
0.037 4 37
0.021 2 21
0.012 1 12
0.007 1 7
0.004 0 4
Why so much short-term focus?
Value ofyear 1
Value ofyear 50
Kgs inyear 1
Kgs inyear 50
Islamic methodKgs/Value inyear 1 & 50
are same
Key Economic Theorem: Focus on today; consumeeverything as early as possible and dont bother about future.
Year Production
(Kgs/year)
Normal value of
production @
$ 10/kg
1 2 31 100 1,000
5 100 1,000
10 100 1,000
15 100 1,000
20 100 1,00025 100 1,000
30 100 1,000
35 100 1,000
40 100 1,000
45 100 1,000
50 100 1,000
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FROM THE CAVES, TO THE MOON, TO THE CAVES
Richard C. Duncan, Ph.D. Institute on Energy
and Man, June 27, 1996
Even if the entire mass of the earth were petroleum, it would be
exhausted in 500 years at 5% increase in rate of consumption. For
addition 100 year 157 earths would be required (current production is 10
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Backup
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Global Primary Energy Consumption
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industrialization of agriculture
Graph source http://www.theoildrum.com/story/2006/8/2/114144/2387
Briefly, the above graph shows a theoretical depletable resource which follows the 'best
first' concept of resource extraction. The vertical axis is quantity and the horizontal istime. The gross energy resource "X", is the entire area under the curve. ("X" =
"A"+"B"+"C"+"D"). Direct energy costs are "D". Indirect energy costs (like tractors and
highways and medical insurance and such) are "C". Environmental externalities (in
energy terms) are "B". "A" represents the total net energy of the resource after costs
have been subtracted. At any given point in time the EROI can be calculated by taking a
ratio of the total area divided by the costs (depending on the boundaries). As can be
seen, net energy peaks and goes to zero way before the total gross energy is depleted.
(This graphic is from an upcoming paper on EROI by a colleague (Kenneth Mulder) and
myself.) http://www.theoildrum.com/story/2006/8/2/114144/2387
Net Energy productionethanol EROI of 1.2:1 (Net 0.2)
Oil (1930) : 100:1
Oil (2009) 10-15:1
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One aspect of energy quality: a comparison of the energy content per unit mass and per unit volume for various sources.
http://www.eoearth.org/article/Ten_fundamental_principles_of_net_energy
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E & P B u s i n e s s
G a s /c o m p
S e r vC o m p
J VP a r t n
P r o s E x p D r i D e v O p e A b a
A s s
B l o
O p e r G o v t /C o m p
S h a r eB a n k
M a r kF o r c
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Foundation of Decision Sciences:
Foundation of Decision Sciences:
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Dominates Dominates
D
ominates
To Feed To controlTo control
To liveTo Serve
To serveTo serveTo RuleTo Rule
Foundation of Decision Sciences:Who benefits? Who Suffers?
Foundation of Decision Sciences:Who benefits? Who Suffers?
R f P j t C t V i ti
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Preliminary
Studies
Detailed
Engineering
Basic
EngineeringPreliminary
DesignConceptual;
Studies
-40
-30
-20
-10
0
+10
+20
+30
+40
Accuracy
ofe
stim
ates
(as%
ofproje
ctc
ost)
Range of Project Cost Variations
R D l t St
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Reserves Development Stages
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