Energy Finance and Economics

Energy Finance and Economics offers the most up-to-date information and compelling insights into the finance and economics of energy. With contributions from today's thought leaders who are experts in various areas of energy finance and economics, the book provides an overview of the energy industry and addresses issues concerning energy finance and economics.

The book focuses on a range of topics including corporate finance relevant to the oil and gas industry as well as addressing issues of unconventional, renewable, and alternative energy.

• A timely compendium of information and insights centering on topics related to energy finance
• Written by Betty and Russell Simkins, two experts on the topic of the economics of energy
• Covers special issues related to energy finance such as hybrid cars, energy hedging, and other timely topics

In one handy resource, the editors have collected the best-thinking on energy finance.

Acknowledgments xi

1 An Introduction to Energy Finance and Economics 1
Betty J. Simkins and Russell E. Simkins

Part One An Overview of Energy Finance and Economics

2 Geopolitics and World Energy Markets 19
Robert W. Kolb

3 Energy Economics: Past, Present, and Prospects for the Future 49
James L. Williams and Betty J. Simkins

4 Sustainable Energy: Myths and Realities 79
Olamide O. Shadiya, Jane A. Talkington, John Mowen, Karen High, and Josh L. Wiener

5 A Brief Introduction to the Petroleum Industry: From Crude Oil and Natural Gas to Petrochemicals and Their Products 107
Russell E. Simkins and Kenneth A. Borokhovich

6 The Economics of Renewable Energy 129
Brad Carson

7 How Our Political Views Affect Our View of Energy Prices 145
Sheridan Titman

Part Two Financial and Economic Analysis in the Energy Industry

8 Oil and Gas Accounting 151
L. Charles Evans III

9 Financial Statement Analysis for Oil and Gas Companies and Competitive Benchmarking 181
Siamak Javadi, Betty J. Simkins, and Mary E. Wicker

10 Petroleum Economics, Risk and Opportunity Analysis: Some Practical Perspectives 229
David A. Wood

11 Real Options and Applications in the Energy Industry 253
Betty J. Simkins and Kris Kemper

12 International Petroleum Fiscal System Design and Analysis 269
David Johnston

13 Financing Large Energy Projects 313
Stephen V. Arbogast and Praveen Kumar

14 Financing Bio-Fuels Projects: Case Study Lessons 343
Stephen V. Arbogast

Part Three Energy Risk Management and Related Topics

15 Energy Derivatives and Markets 365
Craig Pirrong and Mohsen Mollagholamali

16 Introduction to Energy Risk Management 379
Ivilina Popova and Betty J. Simkins

17 Risks in Trading Energy Commodities 411
Divya Krishnan

18 Carbon Management and Environmental Issues 425
Evgenia Golubeva

19 Hedging and Value in the U.S. Airline Industry 443
David A. Carter, Daniel A. Rogers, and Betty J. Simkins

Part Four Case Studies

20 PKO Resources, Inc.: Valuing a Producing Oil and Gas Property 467
John D. Martin, J. Douglas Ramsey, and Sheridan Titman

21 Financial Analysis of the Purchase of a Hybrid Consumer Vehicle 477
Don M. Chance, Pratik Dhar, and Betty J. Simkins

22 ExxonMobil Corp.’s Acquisition of XTO Energy, Inc.: An Exercise in Valuation 491
Allissa A. Lee and Betty J. Simkins

23 Southwest Airlines: The Blended Winglet Project 513
Aaron Martin, Daniel A. Rogers, and Betty J. Simkins

24 Wind Energy Power Company, Inc. (A): Analyzing a Wind Energy Investment 525
John D. Martin, J. Douglas Ramsey, and Sheridan Titman

25 A Case Study on Risk Management: Lessons from the Collapse of Amaranth Advisors LLC 543
Ludwig Chincarini

Index 579

BETTY SIMKINS, PhD, is the Williams Companies Professor of Business and a Professor of Finance in the Department of Finance at Oklahoma State University’s (OSU) Spears School of Business. She teaches energy finance, a course that she developed, at both the undergraduate and graduate levels, and also teaches executive education courses on energy finance for companies globally. Her primary area of research is risk management, including energy risk management, and she has published extensively in this area. Simkins has received a number of teaching awards at OSU, including the Regents Distinguished Teaching Award. She currently serves on the Board of Directors for the Financial Management Association, as coeditor of the Journal of Applied Finance, editor of FMA Online, and as past president of the Eastern Finance Association. Simkins worked in the corporate world for ConocoPhillips and Williams Companies.

RUSSELL SIMKINS is Manager of Proposal Services in the College of Engineering, Architecture, and Technology at Oklahoma State University (OSU) and a licensed Professional Engineer in the state of Oklahoma. He has over thirty years of engineering experience and worked for ConocoPhillips, Fractionation Research Inc., Lubrizol Corporation, Southwest Research Institute, and the U.S. Department of Energy. Simkins has also been active in the engineering profession as a member of various working groups in the Society of Automotive Engineers (SAE), Coordinating Research Council (CRC), and American Society of Testing Materials (ASTM) dealing with fuels and lubricants.

When it comes to the issue of energy finance and economics, there are many opinions out there, but what’s really needed in order to gain a realistic understanding of this field are accurate and unbiased facts. That’s why Energy Finance and Economics, part of the Robert W. Kolb Series in Finance, has been created.

Engaging and informative, this reliable guide contains the latest insights regarding the finance and economics of energy based on contributions by practitioners and academics who are experts in these areas. It’s intended to bridge the gap between the scientific and technological foundations of energy and the real-world applications in the fields of finance and economics.

Divided into four comprehensive parts—with each chapter containing review questions to help reinforce key concepts—this book offers extensive coverage in the areas of valuation, analysis, and risk management, and includes timely discussions about the future of energy. Page by page, it addresses the most essential issues associated with energy finance and economics, and will help you:

• Gain valuable knowledge regarding energy supply and demand, industry structure, the myths and realities about sustainable energy, geopolitics and world energy use, and the drivers of energy prices
• Develop a better sense of value creation and decision-making in the energy industry
• Understand energy applications for best practices in financial analysis, including accounting standards that apply to oil and gas companies, capital budgeting and risk analysis for energy projects, and the economics of renewables
• Become familiar with the various types of energy derivatives and markets, and utilize key hedging techniques useful to energy risk management
• Put the field in perspective with practical case studies related to energy financial analysis such as the economics of buying a hybrid vehicle; Southwest Airlines’ decision to retrofit their fleet of jets with blended winglets to save on fuel costs; and the economics of wind energy projects, among others
• And much more

Energy finance is a complex topic, but with this book as your guide, you’ll gain a broad understanding of it, and discover how it can be effectively applied in real-world situations.