Feasibility analysis of the development of an oil field: a real options approach in a production sharing agreement

Marcelo Nunes Fonseca, Edson Oliveira Pamplona, Paulo Rotela Junior, Victor Eduardo de Mello Valério

Abstract


Purpose – The aim of this research is to analyze the feasibility of
developing a real oil field in Africa under a production sharing
agreement, through the application of the real options theory.


Design/methodology/approach – The research was conducted
according to the principles of modeling and simulation, based on a
structure that consists of three phases, in order to facilitate project
feasibility analysis.


Findings – Initially, according to the traditional method, we suggest
that the decision-maker does not invest in the development of the
field. However, by incorporating uncertainty into the decision-making
process, other results were obtained. Although reduced, we attested that
there is a likelihood of feasibility. Next, by using the binomial model
to represent the process of oil barrel price diffusion, the asset value is
calculated considering the flexibility of delaying the development of
the field.


Originality/value – The results show that, if a manager has the right
to invest in the future and wait for better oil prices, postponing the
development of an oil field adds value to his assets. The proposed
method is a contribution that offers subsidies to improve decisionmaking
processes to evaluate investments.


Keywords


Feasibility analysis; real options; production sharing agreement; oil exploration and production.



DOI: http://dx.doi.org/10.7819/rbgn.v19i66.2943

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