Financial Mathematics Presenation_IoBM

8/8/2019 Financial Mathematics Presenation_IoBM

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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
http://www.huaren.com/UnitedNations/photo-2.htm


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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.htm


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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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Documents

Financial Mathematics Presenation_IoBM