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Economic Evaluation of Oil and Gas Upstream Projects Using the Real Options Approach (A Case Study)
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Meysam Jannatipour *   1, Tooraj Deghani , Siamak Haji yakhchali |
| 1- , jannati.aut@gmail.com |
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Abstract: (6118 Views) |
In a competitive market with uncertainty, operational flexibility and strategic adaptability is one of the most important success factors for long-term projects. Oil industry managers face a challenge in the economic evaluation of projects given massive investments undertaken in the oil industry under uncertain conditions. Discounted cash flow (DCF) is a method that has been used for economic evaluation of projects for many years. This method is not applicable to the oil industry as it assumes certainty regarding inputs while the oil industry is inherently uncertain. In this study we uase real option analysis to evaluate investments in the Aghar fas field in Iran. We apply this model because it allows for managerial flexibility in project management. We consider the following options: abandon option, expansion option, contraction option and combination of abandon, expansion and contraction options. We evaluate these options using a binomial tree, with specified values for the above noted options. We find the expansion option to be the preferred option.
JEL Classification: M19, L10, C02
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| Keywords: real option, uncertainty, binomial tree, monte carlo simulation, economic evaluation, gas field |
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Full-Text [PDF 587 kb]
(4724 Downloads)
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Type of Study: paper |
Subject:
Energy Economic
Received: 2016/05/11 | Accepted: 2017/07/3 | Published: 2017/12/20 | ePublished: 2017/12/20
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