Establishment and application of evaluation and investment timing model for undeveloped oilHeld

Key words:  petroleum economics  real option  Monte Carlo simulation  investment decision-making  undeveloped oilfield

Abstract:

The real option traits within the development of an undeveloped oilfield project were analyzed, and a novel evaluation and investment timing model was established. Monte Carlo method was used to simulate the stochastic process of price fluctuation for crude oil and to evaluate the delay option. The calculation of the parameters in the model was discussed. The model was applied to calculate the value of an underlying undeveloped oilfield and the optimal time to develop in a practical case. The results show that the new model can break the limitation of traditional discounted cash flow method，and provide objective proofs to decision-makers and help them to realize the internal risk and potential benefits of the investment project more clearly, which makes the decision process more objective and scientific.