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The implementation of real options theory for economic evaluation in oil and gas field project: Case studies in Indonesia
Aziz P.A.a, Ariadji T.a, Fitra U.R.a, Grion N.a
a Petroleum Engineering, Bandung Institute of Technology, Bandung, Indonesia
[vc_row][vc_column][vc_row_inner][vc_column_inner][vc_separator css=”.vc_custom_1624529070653{padding-top: 30px !important;padding-bottom: 30px !important;}”][/vc_column_inner][/vc_row_inner][vc_row_inner layout=”boxed”][vc_column_inner width=”3/4″ css=”.vc_custom_1624695412187{border-right-width: 1px !important;border-right-color: #dddddd !important;border-right-style: solid !important;border-radius: 1px !important;}”][vc_empty_space][megatron_heading title=”Abstract” size=”size-sm” text_align=”text-left”][vc_column_text]© Research India Publications.Conventional Net Present Value (NPV) is one of the very simple and popular methods that is used for a valuation of projects and for decision making regarding investments in planning of a field development. Conventional NPV analysis involves the estimation of an investment’s worth by applying a risk-adjusted discount rate to expected net cash flows derived by applying an expected price case to expected output at that price. However, there are some important aspects which are not taken into account by the conventional NPV in many types of projects valuation. One of them is managerial flexibilities. Options that are derived from them are commonly called “real options” which is associated with project uncertainties. Binomial Method with risk-neutral probabilities is used to approximate them, associated with the changes in the value of a project over time. There are three methods that will be used to solve the binomial problem. The Cox, Ross, and Rubenstein (CRR), Jarrow-Rudd, and Tian method This study shows how real options theory can be applied for valuation of an oil and gas field development in Indonesia by following the Indonesian PSC (Production Sharing Contract). In this field, there are options which can be taken into account such as investing to enhance production, drilling certain number of wells, waiting, or shutting down the field (abandon).[/vc_column_text][vc_empty_space][vc_separator css=”.vc_custom_1624528584150{padding-top: 25px !important;padding-bottom: 25px !important;}”][vc_empty_space][megatron_heading title=”Author keywords” size=”size-sm” text_align=”text-left”][vc_column_text][/vc_column_text][vc_empty_space][vc_separator css=”.vc_custom_1624528584150{padding-top: 25px !important;padding-bottom: 25px !important;}”][vc_empty_space][megatron_heading title=”Indexed keywords” size=”size-sm” text_align=”text-left”][vc_column_text]Real options[/vc_column_text][vc_empty_space][vc_separator css=”.vc_custom_1624528584150{padding-top: 25px !important;padding-bottom: 25px !important;}”][vc_empty_space][megatron_heading title=”Funding details” size=”size-sm” text_align=”text-left”][vc_column_text][/vc_column_text][vc_empty_space][vc_separator css=”.vc_custom_1624528584150{padding-top: 25px !important;padding-bottom: 25px !important;}”][vc_empty_space][megatron_heading title=”DOI” size=”size-sm” text_align=”text-left”][vc_column_text][/vc_column_text][/vc_column_inner][vc_column_inner width=”1/4″][vc_column_text]Widget Plumx[/vc_column_text][/vc_column_inner][/vc_row_inner][/vc_column][/vc_row][vc_row][vc_column][vc_separator css=”.vc_custom_1624528584150{padding-top: 25px !important;padding-bottom: 25px !important;}”][/vc_column][/vc_row]