Decision-making criteria used

• 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
Key performance drivers
EROI: The Key Variable in Assessing Alternative Energy Futures?
 Upstream Country Frameworks
and Risk/Reserve Position
(An Inverse Relationship for Private
Favorable Investment)
Worldwiderisk
Worldwide risk
Non-attainment area of capital
capital
high risk/reserve “Equilibrium”:
“Equilibrium”:
capitalwill
capital will
Government GOM Deep position and favorable
Policies policies flowto
flow tohigh
high
U.S risk/policy
(Commercial Norway risk/policy
Framework) E. Canada constrained
constrained
Angola locationbut
location but
China with
with
Colombia substantialrisk
risk
Venezuela substantial
Brazil FSU premiums
premiums
India Mexico Saudi Arabia
Favorable
Risk/Reserve Position
Source: Michot Foss © 1999
 Decision Making Tools

 Monte-Carlo (Reserves)
 Decision Trees (EMV)
 Scenario Planning
 Portfolio Theory (investment)
 Option theory (Development)
 Analytic hierarchy process
 Preference theory (Cost of information)
Multi-stage Decision Process
 R
P GOVERNMENT TAKE E
R (Bonus, price discounts royalty, taxes) N
G O T
R F
O I
S T CONTRACTOR TAKE
S

ENTITELEMENTS
R

CONTRACTOR
OPERATING COSTS
E
V C
E O
N DEVELOPMENT COSTS
S
U
E T
S S
EXPLORATION COSTS
 Global competitive framework

 Competition between
countries
 Competition between
companies
 Competition between
projects within
companies
 Competition with other
energy resources
 Competition with other
industries
Capital Market
 Key Factor effecting Fiscal Regime

Market Risks Reserves Costs Prices Time

 Impact of exploration Risk
Figure 7: Minimum dry hole cash flow requirements per barrel
Reserves Bcf 29 58 145 290 580 870 1,160
Reserves Mboe 5 10 25 50 100 150 200
POS Dryholes MUS$ ……… (Exploration Costs =$/boe)……………
50% 1.0 40 8.0 4.0 1.6 0.8 0.4 0.3 0.2
33% 2.0 80 16.0 8.0 3.2 1.6 0.8 0.5 0.4
25% 3.0 120 24.0 12.0 4.8 2.4 1.2 0.8 0.6
20% 4.0 160 32.0 16.0 6.4 3.2 1.6 1.1 0.8
10% 9.0 360 72.0 36.0 14.4 7.2 3.6 2.4 1.8
5% 19.0 760 152.0 76.0 30.4 15.2 7.6 5.1 3.8
Note: dry hole cost per well assumed MUS$ 20 including G&G
 Government take at different prices
Figure xxxx: Maximum Government Take at $ 7/mmbtu gas price
Crude 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 $/boe 15.00 12.00 10.00 8.00 5.00
Gross Revenue MUS$ 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 4,176
Corporate Take (CT) % 71% 50% 38% 28% 16%
Government Take (GT) % 29% 50% 62% 72% 84%
 Government Revenue:
at difference cost and price structure

Figure xx: Take at different oil prices Figure xxx: GT at different cost structures
100%
90%
78% 83%
80% 95%
80% 91%
72% 80% 89%
70% 87%
83% 83%

Government Take (%)

58%
60%
60% 69%
50%
42% 58%
40%
28% 40%
30% 20%
45%
22%
20% 17%
20% Government Take at $50/barrel
10% 20% Government Take at $150/barrel
50 75 100 125 150
Oil Prices=($/boe) 0%
Corporate Take (CT) Government Take (GT) 15 12 10 8 5
Cost=($/boe)
NPV of reserve over production cycle
Effective production cycle on NPV
 Bidding mechanism
Price Discounts
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<=150 (150 cap) 150 0.050 15% 10% 20%
Weight 1.000 0.6425 0.5925 0.6750
Prices
Zonal Discount 75% Bidder 1 Bidder 2 Bidder 3
Current Price 25 18.8 17.8 15.9
50 37.5 35.6 31.9
75 46.9 44.1 45.9
100 54.4 50.6 55.3
125 59.1 54.4 60.0
150 61.9 56.3 63.8
Modern tragedy of Contradictory Laws
Co
ll ec it y
b il
M
tiv
e we
sta
i na
al
or llb
ein Su ic
La al g
ys s
ws Ph Law
Se Integral ge a
lf-C U s
en ick
ter
ed System Qu

Interest/gambling
Economic
Trade

Laws

Divine laws (Perpetual)

Capitalist laws (Today)
" PULITZER  PRIZE "  winning  photo  taken  in  1994  during  the  Sudan  famine.
The  picture  depicts  a  famine  stricken  child  crawling  towards  an  United  Nations  food 
camp,  located  a  kilometer  away.
The  vulture  is  waiting  for  the  child  to  die  so  that  it  can  eat  it.  This  picture 
shocked  the  whole  world.  No  one  knows  what  happened  to  the  child,  including  the 
photographer  Kevin Carter  who  left  the  place  as  soon  as  the  photograph  was  taken.
Three  months  later  he  committed  suicide  due  to  depression.
 Basic types of growth patterns
Growth
c
natural curve
(natural resources)
linear curve
(machines)
exponential curve b
(money)
Interest growth
vs
Natural growth
a

Time
Types of taxation Structures
Regressive Vs Progressive
 Petroleum Fiscal
Petroleum Fiscal Systems
Systems

Concession
Concession Production Sharing
Production Sharing Service
Service
Agreements
Agreements Agreements
Agreements Agreements
Agreements

Pure
Pure Risk
Risk Hybrid
Hybrid
Service
Service Service
Service
 Greatest Threat to Life: Food Scarcity
We are eating oil!!!!!
from planting, irrigation, feeding and harvesting,
through to processing, distribution and packaging.
In addition, fossil fuels are essential in the
construction and the repair of equipment and
infrastructure needed to facilitate this industry,
including farm machinery, processing facilities,
storage, ships, trucks and roads
Pesticides (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
 POWER SHIFT:
PEOPLE GLOBAL FINANCE

MARKET Globalization CAPITALIST

Deregulation ECONOMY
ECONOMY Concentration
Small & Local Large & Global

People Global Financial System

Ownership

Culture & Global Corporation

Rules Ownership
Choice

Culture &
Rules
Choice
Local
Enterprises
People

Source: Life after the Dominance of Capital, by David C. Korten

http://www.bke.hu/~kg_korny/altern/korten/kortpres.html
Framework of integrated human ecosystem
External Political &
Economic Conditions

Social Ecological
Process Interactions Process
Demography Primary
Technology
Human Land use Natural production
Land cover
Economy Systems Production Systems Populations
Institutions ‫انسانى قوانين‬ Consumption ‫فطرى قوانين‬ Organic matter
Culture Disposal Nutrients
Information Disturbances
‫فطرى اور انسانى‬
‫قوانين كا ربط‬
External Biological, Geological
& Physical Conditions
Biggest tragedy of our time is that modern priests (economists) do
not know that something must be physically possible before it can be
economically possible.
 Why so much automation?
Oil is not priced rightly

Real Price Present Price

1 Energy content 5,800,000 BTU/Barrel Costs component $/bbl
2 Human Output 250 BTU/Hour Exploration 2
3 Human Energy 23,200 Hours/Barrel
Development 4
4 Human wages 8 US$/Hour
Production 3
5 Human cost 185,600 US$/barrel
6 Exchange rate 80 Rs/US$ Distribution 2
7 Conversion factor 158.987 Litre/barrel Taxes 4
8 Replacement Value 1,167 US$/litre Profit 3
9 Replacement Value 93,391 Rs/litre Sale price 18
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.
 Divine Economic Constitution:
Economic Democracy

Earning Side Usage Side

‫آمدنى‬ ‫مصارف‬

Business Usury Individual (‫ )ف[[[رد‬State ‫ت‬

( ‫)ح[كوم‬
Frugality & Sharing Distribution
‫بيع‬ ‫ربا‬ ‫عفو‬ ‫سدباب تكاثر‬

‫ت َل َع َّل ُك‬
‫( ْم‬Hashar ِ ِ ‫اآل َياهّللا‬ ‫م‬ ُ
‫ك‬ َ
‫ل‬ ‫هّللا‬ ُ‫ن‬‫ي‬ َ ‫ب‬ ‫ي‬ ُ ‫ك‬ َ ِ ‫ل‬ َ
‫ذ‬ َ ‫ك‬ َ ‫و‬ ‫ف‬ ْ َ ‫ع‬ ْ
‫ل‬ ‫ا‬ ‫ل‬ ْ ُ ‫ق‬ َ‫ون‬ ُ ‫ق‬ ِ ‫ف‬ َّ ‫ن‬ ‫ي‬ ‫ا‬ ‫اذ‬ َ ‫م‬ ُ ‫ك‬ َ ْ َ
‫ن‬ ‫و‬ ُ ‫ل‬ َ ‫أ‬ ‫س‬ َّ ‫ي‬ ‫و‬
(Baqra 279)
‫يل‬
‫ار َج َه َّن َم َف ُت ْك َوى ِب َها‬
‫ب‬ ‫س‬
‫م‬ ْ ‫ك‬
‫ِي‬
‫ِن‬
‫ف‬
‫م‬ َ
‫ن‬
‫ا‬ ‫ه‬
َ
‫ِي‬
‫ن‬
‫اء‬ُ
ِّ ‫و‬
‫ف‬
ُ
ِ7) ِ ُ َ ُ ُ ‫ب َّ منَ َ أْلهّللا َ ِ ُ ْورس َولِ ِه‬
‫ي‬ ‫ا‬
َ
[ ‫ق‬
‫ا‬
ِ
‫ن‬ ‫ه‬
ِ
‫ب‬
‫ف‬
َ َ ‫غ‬
‫ن‬
‫الر‬
‫ي‬
‫ي‬
ِّ َ
‫ل‬ ‫ع‬
‫ال‬
‫ا‬
‫و‬
‫ى‬
َ
‫م‬
َ‫ن‬
‫م‬َ
‫ة‬
ِّ
َ
‫ح‬
‫ِض‬
‫ر‬
‫ي‬ ْ َّ ‫ب‬
ٍ َ ‫ي‬ ‫ح‬
‫ف‬
َ ‫ة‬
‫ر‬
ِ ً
(Baqra
‫م‬
ْ
‫ل‬ ‫ا‬
‫و‬
َ
‫ل‬
‫ح‬ َ
‫و‬
‫و‬
َ
‫ُو‬‫ي‬ َ ‫ب‬
ِ
‫َب‬
َ
‫د‬ ْ
‫ا‬ ‫ع‬
‫و‬َ
‫ه‬
‫ن‬ُ
‫ِيم‬
‫ذ‬
‫ذ‬‫ي‬
َ
َ‫ون‬
219) ْ ْ ‫ال‬
‫أ‬
ُ
‫ب‬
‫ل‬ َ َ
‫ف‬ َ ‫أ‬
ْ
‫ل‬
‫ك‬ ُ ْ
‫ا‬
‫ب‬
َ‫ون‬
‫ا‬ٍ
‫ي‬
َ
‫و‬ ُ َ
‫ل‬
‫ا‬ ُ
‫ز‬
‫ع‬
َ
‫ذ‬ َ
‫هّللا‬
‫اَل‬
‫ف‬
‫ع‬
ْ ِ
‫ن‬
‫ت‬
‫ب‬
‫ك‬
َ
َ‫ون‬ ‫ي‬
‫ي‬
ْ
َ
‫م‬
ْ
‫ُم‬
َّ
‫ل‬
‫ر‬ ‫ك‬
ُ
‫ه‬ َّ َ ‫ل‬
َ‫ين‬
‫ك‬َّ
‫ر‬
‫ن‬
ْ
َ
‫ف‬
ِ
‫ذ‬
‫ح‬
‫ش‬ ِّ ِ َ
‫إ‬ َ
‫ت‬
‫ل‬ َ َ
‫ف‬
‫ا‬
َ
‫ت‬ ‫ب‬
َ
‫و‬ َ
‫أ‬ َ
‫ف‬
َ
ِ stop taking usury, then beٍ ready forَ ْ َ َ ْ ُ َ ْ َ )34( َ ِ war ْ َ
But
Allah
They if
inask you has do
you not
allowed
how َ
much business theynot should and spend; forbidden Say: "What usury is
“…
with ‫ا‬ ‫م‬َ order
ْ
‫ا‬
Allah ‫و‬ ُ ‫ق‬ ‫و‬ ُ
‫ذ‬
and
َ
‫ف‬ that
‫م‬
ْ ُ
‫ك‬ His ِ‫س‬ ُ
wealth
‫ف‬ ‫ن‬ ‫أل‬ ‫م‬
Messenger ْ ُ
‫ت‬ ‫ز‬ ْ may
‫ن‬ َ َ
‫ك‬ ‫ا‬ ‫م‬ َ ‫ا‬ ‫َذ‬َ ‫ه‬ become
‫م‬ ْ ‫ه‬
ُ ‫ر‬
ُ ‫و‬ ‫ه‬
ُ ُ
‫ظ‬ confined
‫و‬ َ ‫م‬ْ ‫ه‬
ُ ‫ب‬
ُ ‫نو‬ ‫ج‬
ُ to
‫و‬ َ the
‫م‬
ْ ‫ه‬
ُ ‫ه‬ ُ ‫ا‬ ‫ب‬ َ ‫ج‬
ِ
beyond
rich
(Baqra 275) amongst your needs."
you”. Thus Allah makes clear to you His
revelations: In order that you (Tauba may ponder. 34-35)(Baqraَ‫ون‬ 219) ‫ُكن ُت ْم َت ْك ِن ُز‬
Economics: A life blood system of Society

Individual
Distribution
(Arteries)

State
Collection &
Re-distribution
(Veins)
 Lifecycle is no more sustainable
100%
Stacked presentation of work done over time in
Wood
United States by labor, Domesticated animals, Fuels
80% as a percentage of Total Horsepower in the Economy
Labor
6000 products
60% Oil is capitalism's crack cocaine
La (Fertilizers &
bo pesticides!!!!)

40% r
Energy is
Fuel
Domesticated now
20% Animals life blood of
economy
Animals
0%
1850 1870 1890 1910 1930 1950 1970
World oil & Gas Outlook
 Major problem of Humanity:
Operating under incompatible Systems
Biology/nature
Mechanics/cancer

Matter ([‫)ماده‬ Money ‫ت‬

( ‫)دول‬
Natural (Real) Economy Financial (Shadow) Economy
Operates under Operates under unconstrained
physical/biological constraints compound interest rate growth

Organic Resources Taxes (‫)محصول‬

‫حياتى اشياء‬
(Manpower, animals, plants) Gov. Deficit (‫)ا[فرا[ط زر‬
Inorganic Resources
Money ‫ى‬
( ‫)ك[رنس‬
‫نامياتى اشياء‬
(Natural Resources)
Credit ‫ض‬
( ‫)ق[[ر‬
Profound change in the underlying dynamics:
•Money and credit rather than goods/services had become the real economy
•Energy and automation has become real contributor rather than manpower and animals
 Impossible (Financing Decisions)
8%
cc
Interest
Year Kg (Gold, Sliver or any other commodity) Rate (8%)
10 1
200 1 Kg 4,838,950
400 Mass in year 1 23,415,433,085,206
600 of earth 113,306,100,207,918,000,000
800 No of 548,282,506,567,769,000,000,000,000
Kgs in
1000 earths 2,653,111,407,564,170,000,000,000,000,000,000
year 2000
1200 12,838,272,344,326,700,000,000,000,000,000,000,000,000
1400 62,123,752,631,416,000,000,000,000,000,000,000,000,000,000,000
1600 300,613,707,008,236,000,000,000,000,000,000,000,000,000,000,000,000,000
1800 1,454,654,572,742,820,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000
2000 7,039,000,140,947,130,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000
5,972,000,000,000,000,000,000,000
1,178,667,136,796,240,000,000,000,000,000,000,000,000,000

The economist sees economic activity as a function of infinite "money creation",

rather than a function of finite “natural resources".

“Organisations in the West with money to invest, especially those which like to
consider themselves as being ethical, might have rather more to learn from Islam
than is generally acknowledged. By applying the Islamic approach, a lot of human
misery could have been avoided. Wayne A.M. Visser and Alastair McIntosh
http://www.che.ac.uk/publications/usury.htm
 Why so much short-term focus?
Year Production Normal value of Weight of future Quantity Today's Value
(Kgs/year) production @ use @10% required for of future
$ 10/kg future) Production
1 2 3 4 5 (2x4) 6(3x4)
1 100 1,000 1.000 100 1,000
5 100 1,000 0.636 64 636
10 100 1,000 0.361 36 361
15 100 1,000 0.205 20 205
20 100 1,000 0.116 12 116
25 100 1,000 0.066 7 66
30 100 1,000 0.037 4 37
35 100 1,000 0.021 2 21
40 100 1,000 0.012 1 12
45 100 1,000 0.007 1 7
50 100 1,000 0.004 0 4

Islamic method
Kgs/Value in Kgs in Kgs in Value of Value of
year 1 & 50 year 1 year 50 year 1 year 50
are same

Key Economic Theorem: Focus on today; consume

everything as early as possible and don’t bother about future.
 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
Backup
Global Primary Energy Consumption
 industrialization of agriculture
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 is
time. The gross energy resource "X", is the entire area under the curve. ("X" =
Net Energy production
"A"+"B"+"C"+"D"). Direct energy costs are "D". Indirect energy costs (like tractors and ethanol EROI of 1.2:1 (Net 0.2)
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 Oil (1930) : 100:1
have been subtracted. At any given point in time the EROI can be calculated by taking a Oil (2009) 10-15:1
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

Graph source http://www.theoildrum.com/story/2006/8/2/114144/2387

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
 E & P B u s in e s s

G a s / o il S e r v ic e JV O p e ra to r G o v t/s ta te S h a r e h o ld e r s / M a rk e t
c o m p a n ie s C o m p a n ie s P a rtn e rs C om pany B anks F o rc e s

B lo c k

A sset

P ro s p e c t E x p lo re D r il l D e v e lo p O p e r a te A bandon
 Foundation of Decision Sciences:
Who benefits? Who Suffers?
To Feed To
Tocontrol
control

Do
ate

min
mi n

ate
Do

To Serve To live

s
Dominates
To
ToRule
Rule To
Toserve
serve
Range of Project Cost Variations
+40

+30

+20

+10

0 Preliminary Conceptual; Preliminary Basic Detailed

Studies Studies Design Engineering Engineering
Accuracy of estimates
(as % of project cost)

-10

-20

-30

-40
Reserves Development Stages