This course will explore the economic and commercial aspects of alternative energy. The focus will be on the business of wind, solar and storage technologies, both utility-scale and distributed, the players, who makes money and how, the impacts and implications of different business models, and the future for alternative energy. We will touch on other impactful alternative and distributed energy technologies as well. Policy is one of the three key drivers of the business of alternative energy. Therefore, we will explore, discuss and debate current and future regulatory models. Another significant piece in the equation regarding the business of alternative energy is the operational implications. An examination of the electric power system operational modeling and planning requirements and related operating costs in an environment of increasing and significant penetration of alternative energy resources will be included. We will begin with the history of alternative energy and will end with informed opinions about and options for future business structure(s) in an alternative energy economy.
Energy Value Chain
Energy Value Chain provides an overview of the energy business in all segments, from oil/gas exploration and production through the midstream and refining to electric power and renewables. The course covers basic technical literacy for each segment. It then examines core business models and challenges. Thus students are introduced to dry hole and depletion risks in Exploration/Production, the role of thruput contracts in the Midstream, the upgrading of low value products in refining and the nature of regulatory regimes in the power/renewables sectors.
The Business of Electric Power
The Electric Power Business discusses how regulated and unregulated electric utilities deliver electricity and make money. The course covers the technical aspects of electricity generation, transmission and distribution. It then describes those aspects of the business that resemble a ‘natural monopoly,’ and regulatory regimes designed to allow utilities to deliver reliable power on a financially viable basis. Different approaches to de-regulation and the key profitability drivers of unregulated power generation are also discussed. Finally, the course examines the benefits and challenges of incorporating renewables into the electricity grid.
The Business of Oil and Gas: Exploration and Production
This course goes into greater technical and economic depth as regards what is commonly known as the Oil and Gas “Upstream.” Students will focus on the technical challenge of identifying hydrocarbons buried thousands of feet below the surface and the commercial factors which determine the profitability of producing what is found. Special attention is paid to fiscal regimes and price setting mechanisms which determine the value of production and to probabilistic methods for assessing the risk of unsuccessful drilling. Differences in cost structures for conventional drilling, hydraulic fracking, tar sands, offshore production and LNG will also be discussed.
The Business of Refining and Petrochemicals
The Business of Refining describes the technology used to transform crude oil into usable fuel products and the business strategies used to accomplish this profitably. Refining is one of the most competitive industries in the energy value chain, seemingly despite large barriers to entry to the industry. The course looks at the different refinery structures, their link to profitability, and their impact on the prices of crude oil and oil products. Another module covers the intimate relationships among refineries, petrochemical plants, and natural gas processing plants. Finally, tools used by management and analysts to assess competitive positions and performance of refining companies are examined.
The Midstream Business of Oil and Gas
This course aims to provide students with an insight into the Midstream sector of the oil and gas industry by studying real projects and strategies executed in the midstream sector. The content of the course will include an overview of the midstream business in the natural gas, crude oil, petroleum products and natural gas liquids sectors as they have developed over the past several decades. The course will include an overview of how this sector has developed and the entities that have come to the forefront of this sector, including Master Limited Partnerships (MLPs), Private Equity funded independent companies and regulated Pipelines and Utilities. At the core of this course will be the emphasis on commercial and strategic thought as it relates to the development of new infrastructure across the energy spectrum, and to the acquisition and control of assets from natural gas and crude oil gathering, processing, transmission, treating, refining, fractionation and marketing of the products produced in these processes. The course will also include the exploration of the financial risks, structures and investment strategies and the drivers to investment in the midstream industry, along with discussion of the regulatory issues faced by these companies related to market power and the environment. To achieve the course objectives we will utilize presentation materials, lectures and class discussion, case studies and presentations by guest lecturers from the midstream sector. Course presentation materials will include an overview of the midstream business in the crude oil, petroleum products, natural gas and natural gas liquids segments of the industry, and will show how these sectors are independent in operation, but linked in many ways. As stated, the primary objective of the course is to provide an overview of the midstream business in order to influence or encourage “commercial thought processes” in the context of the oil and natural gas business among class participants and future executives in this dynamic sector of the energy industry. The course will be taught in three modules or sections; an Overview and History of the Midstream Industry, Commercial Considerations for Infrastructure Development and How Deals Get Done.
Decision Making in the Energy Industry
This course deals with the practical application of management science techniques to the solution of complex problems in the energy industry. The energy business is characterized by certain features: these include the preeminent importance of unit production costs, significant dry-hole and catastrophic risks and a high degree of capital intensity. This makes daily optimization of production a critical success factor. It also implies a high degree of importance for risk assessment/management and efficient capital allocation. Decision Making in the Energy Industry teaches the management science techniques used by the industry to tackle these challenges. The decision making aspects covered are: identifying objectives, alternatives and constraints and incorporating them into a spreadsheet model; optimal allocation of scarce resources; and handling uncertainty with simulation and decision trees. Sample problems explored include optimizing refinery and chemical plant operations, determining optimal competitive bidding strategies, determining the optimal allocation of resources to potential projects, and determining peak/off-peak electricity prices. Although the emphasis on applications is on problems in the energy industry, the tools and techniques that will be learned are applicable to problems in virtually any area of any corporate or government entity.
Energy Taxation and M&A Structuring
Taught by the Chief Tax Counsel of Kinder Morgan Inc., Energy Tax takes up the fiscal frameworks which play a major role in the economics of all energy projects. The course begins with a review of key fundamentals of the U.S. tax code. This includes special provisions applicable to energy, the provisions governing Master Limited Partnerships, and how the U.S. treats the overseas operations of U.S. energy companies. This discussion will allow students to understand why/how many firms structure their operations for tax purposes. The course then examines the different tax regimes which non-U.S. governments apply to energy projects. Special attention will be given here to Production Sharing Agreements (PSAs), which dominate the non-U.S. oil/gas landscape. A final section will discuss the role of tax in energy Merger & Acquisition activity.
Renewable Energy: Project Development and Finance
The objective of this course will be for students to better understand wind and solar energy projects as they are deployed in the United States, the project finance environment that funds them, and be better prepared for potential jobs in the sector. The content is designed to appeal to students from all concentrations and work backgrounds. Students will learn about each of the leading renewable technologies from the ground up in order to create a pro-forma projection for both a wind and solar project. This includes a review of wind and solar at the technology level so that students learn more about how each natural resource is converted into electricity and the history of each technology over the past 40 years. Another key aspect of this review will cover the various business models deployed by renewable energy developers and how the U.S. electricity markets drive energy project development. The course covers the key risks associated with solar and wind projects, including environmental, competitive, regulatory, counterparty, and power off-take risks. The electricity sector features a particularly strong influence from federal and state governments. We will review the influences of government policies on the renewable sector and how to appropriately mitigate policy risk. Relatedly, the project finance market for renewable projects shows the effects of tax-based government incentives. Impacts include which companies participate in project finance, and the transaction structures that are unique to green energy. The primary output of this course will be a pro-forma projection of a wind and solar exercise. This pro forma will help illustrate the economics of green energy projects as students model realistic variables that determine project success or failure. A simulated power bidding process will show how these variables impact projects in the real world and is designed to prepare students for interviews and be ready to face these challenges in a renewable energy career. The instructors will discuss the future of wind and solar energy and conclude the course by discussing the jobs market in renewable energy for MBA students. Many of the risk mitigation, development, and project finance lessons in this course can be applied to any form of project development. The format of this course will be lectures and in-class discussion, supplemented by guest speakers.
Strategy and Value Creation for Oil and Gas Companies
Energy firms rely heavily on strategic planning to insure they are creating, not destroying value. This course, taught by a 30 energy consulting veteran, reviews the strategic options available to energy firms and the capabilities which must be nurtured to pursue them successfully. Students will examine a detailed strategy case, “Copache and Maradarko” which addresses the dilemmas currently facing Exploration and Production Companies. An M&A negotiation game involving crude reserves in the Bakken field provides a course capstone.
Strategy of Project Finance
The fundamentals of project finance and its applications to energy projects are the focus of this course. Emphasis is given to how project finance supports business strategy for both cash constrained Sponsors and financially strong companies. A special section discusses the economics of project financing, its relationship to Centralized Finance and its use in leveraged economics. The course is case study-based, using cases written by the Professor on oil/gas exploration, electric power, LNG, pipelines and biofuels.
“The energy sector is undergoing a period of extraordinary change. The KFBS Concentration prepares students today to contribute to the transformation of this industry in the exciting decades ahead.”David Fountain (MBA ’94), North Carolina President, Duke Energy