Importance and significance of Economist in Petroleum Industry

What is an Economist:
An economist is most simply described as a person who has expertise in the field of economics (science
of wealth ). The main job of an economist is to examine the inner workings of the economy of interest to
their organizations and make predictions and recommendations based on that. Also , this individual
contributes to the concept, design and implementation of economic projects . He provides vision, insight
and technical advice to the research projects usually in an effort to increase socioeconomic statuses.
Petroleum Economics
Petroleum economics is a complicated series of political and economic interactions pertaining to the oil
industry. While economics in general is a complex subject, in the case of oil, political concerns add a new
layer to the study of economics. People who study petroleumeconomics need to be familiar
with economics generally, but also geopolitical history and the history of the oil industry as a whole.
Experts in this field can work for government agencies, oil companies, and private companies interested
in the economics of oil production, transport, and refining.
As with economics in general, there are a number of approaches to petroleum economics. Many experts
boil down economic activities to a balance between supply and demand. In this case, supply and
demand are both influenced by political concerns. Political events can have an impact on oil supply as
well as demand, and in turn, oil supply and demand can influence politics.
This branch of economics also includes a broad number of connected fields, including international
shipping, agriculture, manufacturing, transport, and so forth. Understanding of these fields is important,
as all of these industries are involved in the global demand for oil.
Role of Petroleum Economist
The development of oil and gas project is a high cost venture with many significant uncertainties. So, it
requires a lot of planning to make it economical. The person behind economical planning of an oil or gas
project is a petroleum economist . These economists contribute in making oil and gas policies and assist
companies in developing new oil and gas fields after the analysis of economics of development and the
assessment of related risks .
At the outset of any oil or gas project, a discussion with key stakeholders is held to identify the
opportunities for collaboration , potential issues of concern and procedure for obtaining needed
approvals. Stakeholders may include government and regulatory bodies , development partners ,
neighbouring property holders , non governmental organizations (e.g. environmental or human rights
group), financial institutions , and suppliers and contractors. For every such project, economists should:
Assume responsibility for reviewing and compiling risk based business and economic evaluations
for new integrated business ventures in order to support and assist strategic decisions for the
Company.
Prepare financial and economic modeling of the Company's new venture E&P projects,
coordinate project inception up to project sanction / board approval, provide financial and
economic expert guidance towards constructing project bids, prepare comprehensive portfolio
planning and business analysis services necessary to support upstream strategic business plans.
Ensure effective and robust analysis with regards to due diligence in rollout of acquisition and
merger strategies.
Provide economic modeling and sensitivity analysis in order to fully understand and implement
value drivers that could significantly enhance project returns.
Keep abreast of developments on economic evaluation, taxation and fiscal terms, cost
structures product prices and hydrocarbon availability.
Take Responsibility for leading efforts in assuring economic, financial and strategic integrity to
all resource allocation and investment decisions in multi-disciplinary team based environment.
Provide project appraisal services and ensure Economic Assumptions and forecasts (price,
inflation, interest, exchange rate, Company's Discount Rate against the current cost of capital,
business risk in each country) are updated.
An economist also develops estimates for the following:
Capital cost (production platforms , drilling gear and production facilities , e.g. compressors,
pumps, separators, and instrumentation )
Operating cost (including maintenance and workovers)
Personnel needs (workforce size and skills , labor cost and overhead)
Expected revenues (from oil and gas sales, tariffs and payments from partners)
Special attention is paid to the agreements with a host government in regard to financial issues, such as
taxes , royalty rates, royalty payment , Financial liabilities and involvement in social development or
training programs. Related issues include expectations for inflation, future oil and gas prices and
exchange rates.
The estimates, analysis and recommendations of economists are dependent on some technical and
operational factors which include:
Expected rate of decline in well production over time
Expected oil and gas quality (and required cleanup / treatment actions)
Environmental regulations
Proximity of storage facilities and pipelines(or other transportation methods) for getting oil and
gas to the market
Planning for possible operational problems during drilling and production
Decommissioning of equipment and sites at the conclusion of the project

The above discussion brings to light the role of economist in petroleum industry which suggests that
economists are an integral part of any E and P company . Here , a question may arise that if economists
are behind the decision making then what is left with engineers and geologists who are supposed to
bring efficient solutions to the problems encountered during the process. The answer can be simple that
they bring a number of solutions and the economists evaluate them and select the most cost effective
one. Now, it clearly distinguishes the role of the two departments as far as decisions are concerned.

References :
http://www.wisegeek.org/what-is-petroleum-economics.htm
http://www.facebook.com/l.php?u=http%3A%2F%2Fwww.ehow.com%2Fabout_6590901_chief-
economist-job-description.html&h=EAQHBX2dh
http://www.earthworks-jobs.com/oil/ama13041.html
The Oil and Gas Industry A Non-Technical Guide by Joseph F.Hilyard