Project Analysis in Energy Sector

2024/2025

Type: Mago-Lego

Delivered by: School of World Economy

When: 1, 2 module

Open to: students of one campus

Instructors: Sergey Yuryevich Kovalev

Language: English

ECTS credits: 6

Full Syllabus

Abstract

The course is aimed at analysing modern methods of the valuation of investment projects in the fuel and energy complex - from the basic method of discounted cash flows in a deterministic formulation to a complex probabilistic models, that take into account the price of risk and real options. Due to the applied nature of the discipline, special attention is paid to the formation of students' skills of independent calculations on a computer, simulating the key procedures and methods used in the licensed applied industry software systems, that are used in the oil and gas industry. In addition to applied calculations, within the course, considerable attention is paid to the analysis of the microeconomic features of the markets for raw materials and energy resources, as well as to the influence of these features on the formation of valuation methods used in the energy industries. Thanks to this, students develop the ability to draw independent conclusions about the limits of applicability of a particular valuation method in each specific applied situation.

Learning Objectives

1. Understanding the basics of modern methods for assessing the investment attractiveness of long-term projects in the field of energy sector; familiarization of undergraduates with the established practice of applying these methods in Russia and in the world.
2. Understanding the theoretical foundations of modern project analysis in the energy and raw materials sector of the economy, the place and role of economic theory in decision-making in the process of implementing projects, modern scientific approaches to the problems of functioning and development of energy and raw materials markets
3. Developing basic skills of computer calculation of indicators of investment attractiveness of typical long-term energy projects
4. Understanding the views of modern economic theory on the place and role of state tax and regulatory bodies in the implementation of investment projects
5. Developing a general understanding of the trends in the development of state regulation and taxation of the energy and raw materials sector of the economy in Russia and the world; formation of skills for practical valuation of the impact of changes in tax legislation and government regulation on the investment attractiveness of projects.

Expected Learning Outcomes

Analyzes the value assessment (simplified for academic purposes) of projects proposed by the teacher, taking into account the differentiation of cash flows according to the degree of risk.
determines the relationship between the microeconomic model of the general equilibrium in the "Conditional Requirements" market by Errow and the Financial model Capital Asset Pricing Model, be able to explain what restrictions on investor preferences guarantee the equivalence of these models
Determines the general idea of the typical features of the TEK investment projects in the production segment "Intelligence and Mining".
determines the value assessment of the investment project of the MONTE-Karlo method at a probabilistic nature of several parameters - price and geological.
Applies basic knowledge about the beta coefficient and the risk amendment when discounting cash flows, be able to competently substantiate the use of one or another "beta" in a particular situation of the cost estimate of the investment project
Applies basic application programming skills in MS_EXCEL medium, allowing themselves to independently compile and apply a numerical probabilistic calculation algorithm corresponding to a specific business situation
Applies the basic skills to apply the discounted cash flow method (DCF) in the case when the source data has a probabilistic nature.
applies practical skills on the use of "binomial grids" with the cost estimate of long-term investment projects, taking into account the differentiation of cash flows according to the degree of risk and the availability of "real options".
Applies practical skills on the construction of "binomial grids", describing the stochastic price dynamics of various types - Brownian movement, geometric Brownian movement, return to the average, Brownian movement with a return trend towards the average value, geometric Brownian movement with a return trend towing to a long-term trend
Calculates the equilibrium values of the market price of risk and beta coefficients in the framework of the simplified version of the model of general equilibrium in the financial assets market.

Course Contents

1. Basics of taking into account the geological and price disadvantage in the analysis of the investment attractiveness of the TEK projects in the "Rzonka and mining" segment
2. Theoretical foundations of project analysis and its application to the projects of the fuel and energy complex.
3. Cost assessment of subsoil use projects and sections of subsoil, taking into account geological risk
4. The equilibrium risk price in the financial assets market: theoretical foundations of the choice of discount rates under the cost assessment of investment projects
5. Valuation of investment projects of subsoil use with amendment to the market price of risk in discounting cash flows
6. Valuation of subsoil use projects, taking into account the stochastic dynamics of price indicators and possible flexibility in consistent decision-making

Assessment Elements

Final testing - written exam
Homework based on each lesson
Performing small tasks within the framework of seminars
Examination on the topics of the first half of the course
Requires really valid reason.

Interim Assessment

2024/2025 2nd module
0.35 * Examination on the topics of the first half of the course + 0.4 * Final testing - written exam + 0.15 * Homework based on each lesson + 0.1 * Performing small tasks within the framework of seminars

Bibliography

Recommended Core Bibliography

Adelman, M. A., & Watkins, G. C. (2008). Reserve Prices and Mineral Resource Theory. Energy Journal, 29, 1–16.

Recommended Additional Bibliography

Сироткин, С.А. Экономическая оценка инвестиционных проектов: учебник для студентов вузов, обучающихся по специальности «Экономика и управление на предприятиях (по отраслям)» / С.А. Сироткин, Н.Р. Кельчевская. — 3-е изд., перераб. и доп. - М. : ЮНИТИ-ДАНА, 2017. - 311 с. - ISBN 978-5-238-01944-4. - Текст : электронный. - URL: https://new.znanium.com/catalog/product/1028899

Authors

KOVALEV SERGEY YUREVICH

Course Syllabus