Study On The Investment Decision Of Shale Gas Project Based On Multi Stage Compound Real Option

Scholars gradually focus on the study of shale gas since the U.S.shale gas revolution.In the aspect of shale gas exploration and development project investment decision method,scholars have researched from the traditional discounted cash flow method to the real option approach.Considering the multi stage and uncertainty characteristics of shale gas project,if we use discounted cash flow method to estimate its value,we will an underestimate value,which will result in the loss of investment opportunities.In this paper,we will use the compound real option theory to evaluate the shale gas project,which provides a more reasonable and flexible method for the investment decision of the shale gas project,and makes up some defects of the traditional method.Firstly,I sort out the shale gas exploration and development projects in this paper,and find that its basic characteristics are as following:(1)High mining cost.(2)large change in output,high rate of decline and low recovery.(3)Investment and payback period are very long.(4)Usually adopting the "rolling development" model in its development process.The investment decisions of shale gas project have the following characteristics:(1)The investment is irreversible.(2)The value is uncertainty.(3)The choice time of investment opportunity is flexible.(4)Multiple stages.The real options included in the shale gas projects have the following characteristics:(1)Concealment property.(2)Random nature.(3)Conditional.(4)Mutual influence.(5)Learning ability.Secondly,I sort out the investment decision method of shale gas projects,which includes discounted cash flow method,uncertainty analysis method and real option method.Among them,the discounted cash flow method includes investment payback period,net present value method,internal rate of return method and cost effectiveness ratio method.The uncertainty analysis methods include sensitivity analysis,break even analysis,decision tree analysis and Monte Carlo simulation.Through the comparison of the three methods,this paper argues that the real option method is not the negation of the first two methods,but its extension.The real option method,which considers the flexibility and irreversibility of the shale gas project,is more in line with the actual situation.Thirdly,combining the compound real option theory and the actual investment situation of shale gas market,I established the investment decision-making model of shale gas project based on multi stage compound real option,which ont only takes the technical uncertainty into account,measured by the technical success rate,but also take the flexibility and irreversibility of investment into account,measured by variable fluctuation rate.Finally,I used the above model to invest a practical shale gas project in Chongqing,whose results show that the multi-stage compound real option model can be used in the actual shale gas project,which provides a new idea for the decision makers of shale gas projects.