Economic Evaluation Of Oil And Gas Exploration Projects Based On Real Option

A new economic evaluation method of oil-gas exploration and development is established in the article. The hard core of the article is that: discussing the applying theory of the oil-gas exploration and development economic evaluation based on the real options, analyzing and confirming the binomial model of the abandon option in the exploring phase and the partial differential equation of the shut-down option in the developing phase fitting for most oil-gas projects, ascertaining correlative factors based on real projects and the methods how to estimate parameters. The article consists of six parts as follows:The first part of the article briefly introduces the background, meaning and the study methods of the article. It makes a summary of difficulties and innovations inthis article, then gives a detailed statement of the important conceptions and theorieswhich are used in the research process.The Second part makes a general study of NPV method and the real options method of oil-gas projects economic evaluation. 1. It makes a research in-depth of the conventional economic evaluation method of oil-gas projects and gets familiar with factors of oil-gas projects. 2. It makes a review of applying theory, research of model and methods of parameters estimation. 3. The study concludes a systemic comparison of these two methods: NPV method and real options method.The Third part of the paper discusses the applying theory and practical demands of real options method. This part consists of three parts as follows: analyzing the real options characters of oil-gas exploration and development, making a quantitative analysis of two factors:exploration success rate and oil price which have influences on the project's value using historic statistical data, expatiating the practical demands because of the disfigurements of the conventional method.The Fourth part of the article designs the real options models and ascertains the parameters estimating methods. As the hard core of this paper, this chapter gives aframe which will help us to understand the new economic evaluation method of oil-gas projects better at first, then discusses the binomial model and the parameters estimating methods of abandon real options in the exploring phase, the partial differential equation model and the parameters estimating methods of the shut-down real options in the developing phase respectively. In the course of ascertaining the parameters estimating methods, this chapter discusses the application of amathematic method-the Monte Carlo simulation in this article particularly.Fifthly, the article focuses on the analysis of the actual project and the discussion of the application of this new method. This chapter applies the new method which be founded in this paper using the practical oil-gas exploration and development project data to get correlative output results. On second step, the paper J analyzes the advantages and the disadvantages of the models and the parameters estimating methods.Sixthly, the article summarizes the paper and discusses the aspects which the real options research can be improved and developed.