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Real Option Valuation of Offshore Petroleum Field Tie-InsStein-Erik FletenNorwegian University of Science and Technology (NTNU) Vidar GunnerudNorwegian University of Science and Technology (NTNU) - Department of Industrial Economics and Technology Øystein Dahl HemNorwegian University of Science and Technology (NTNU) Alexander SvendsenNorwegian University of Science and Technology (NTNU) December 31, 2011 Journal of Real Options, Vol. 1, pp. 1-17, 2011 Abstract: We value two real options related to offshore petroleum production. We consider expansion of an offshore oil field by tying in a satellite field, and the option of early decommissioning. Even if the satellite field is not profitable to develop at current oil prices, the option to tie in such satellites can have a significant value if the oil price increases. Early decommissioning does not have much value for reasonable cost assumptions. Two sources of uncertainty are considered: oil price risk and production uncertainty. The option valuation is based on the Least-Squares Monte Carlo algorithm.
Number of Pages in PDF File: 17 Keywords: Investment uncertainty, satellite fields, petroleum development, oil fields, energy commodities JEL Classification: D83, G13, G31, Q30, Q40 Accepted Paper SeriesDate posted: January 29, 2012Suggested CitationContact Information
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