Decision To Invest In Overseas Oil And Gas Exploration And Development Projects Based On CVaR Model And Real Option

In recent years, with the rapid development of China's economy, oil demand is increasing year after year. China has become the largest oil consumers except America. In order to meet the domestic demand for oil and gas, protect the domestic security of oil and gas supply; Chinese government encourages domestic enterprises to invest in overseas oil and gas exploration and development projects.Overseas oil and gas exploration and development project is different from normal project, not only to face the complex geological risks and economic risks, but also face the risk of the investment environment and Country Risk that has a marked impact on exploration and development projects. For example, the recent political turmoil in Libya and the Sudan caused huge losses for the companies that invest in these two countries. This paper can help Chinese oil enterprises to effectively avoid risks, improve their level of scientific management, to further improve the economic benefits of the whole process of the exploration-exploitation; enhance the theoretical level of risk assessment and decision making, shorten the gap with developed Western countries, enriching the oil and gas exploration risk assessment and application of the method of investment projects.First of all, this paper collected documents and information about oil and gas exploration investment, summarized research status and development trends in the field, identified problems in the current study by in-depth analysis of previous papers. Then we choose "investment", "oil price", "currency" and "the cost of mining," the four variables represent the investment risk, economic risk, currency risk and country risk, constructed as a function of overseas oil exploration and development projects, while considered the project abandonment option value by using real option method, integrated modern portfolio theory and methods on this basis, to build oil and gas exploration and development Portfolio decision model. Randomly and respectively select six countries, from the world's six major oil-producing region(North America, South America, Asia and Europe, Middle East, Africa and Southeast Asia), China has invested,calculated Each project contains a value of the abandon option by LSM algorithm, and further analyzed effect of the project valuation by oil price, exchange rates, country risk and the cost of mining,and portfolio optimization investment projects between different countries by CVaR model. Finally, according to the practical application of the model results, raised the coping strategies about risks of investment in overseas oil and gas exploration and development.Made some innovative knowledge and results are summarized as follows:(a)First, we added the country risk into overseas oil and gas exploration and development project risk analysis, quantitative analysis of the impact of country risk. In this study, "CPI" represented the country at risk. We estimated the volatility on country risk by using parameter estimation, while "cost of oil" denoted country risk specifically?Finally, we analyzed quantitatively the impact of country risk through a random process modeling and Monte Carlo simulation. Through the analysis you can see, there is a big difference between the impact of changes in oil prices, exchange rates, the investment environment and other factors.(b) We constructed optimization based on real option and CVaR portfolio model. First, we describe the benefit distributions of each exploration and development projects by real options method, take full account of decisions flexible(abandonment option) petroleum exploration and development projects; On this basis, we give full consideration to oil and gas exploration and development projects with the difference between financial assets(income is not normal, peak fat tails, etc.), We improve the traditional Markowitz "variance- mean" model, measure portfolio risk, to overcome deficiencies in the variance of the risk measurement of exploration and development projects, obtain optimal investment ratio by CVaR model. This model will help policy makers to better understand the real value of investment in exploration projects and the potential risks, so that the investment decision-making process more scientific and more reasonable.