Please use this identifier to cite or link to this item:
An evaluation of overseas oil investment projects under uncertainty using a real options based simulation model
|Title:||An evaluation of overseas oil investment projects under uncertainty using a real options based simulation model|
|LC Subject Headings:||Petroleum industry and trade - Simulation methods|
Investments, Foreign - Asia - Econometric models
Monte Carlo simulations
|Issue Date:||Nov 2011|
|Publisher:||Honolulu : East-West Center|
|Series/Report no.:||East-West Center working papers. Economics series ; no. 121|
|Abstract:||This paper applies real options theory to establish an overseas oil investment evaluation model that is based on Monte Carlo simulation and is solved by the Least Squares Monte-Carlo method. To better reflect the reality of overseas oil investment, the model has incorporated not only the uncertainties of oil price and investment cost but also the uncertainties of exchange rate and investment environment. These unique features have enabled the model to be best equipped to evaluate the value of oil overseas investment projects of three oil field sizes (large, medium, small) and under different resource tax systems (royalty tax and production sharing contracts). In the empirical setting, China was selected as an investor country and Indonesia as an investee country as a case study. The results show that the investment risks and project values of small sized oil fields are more sensitive to changes in the uncertainty factors than the large and medium sized oil fields. Furthermore, among the uncertainty factors considered in the model, the investment risk of overseas oil investment may be underestimated if no consideration is given of the impacts of exchange rate and investment environment. Finally, as there is an important tradeoff between oil resource investee country and overseas oil investor, in medium and small sized oil investment negotiation the oil company should try to increase the cost oil limit in production sharing contract and avoid the term of a windfall profits tax to reduce the investment risk of overseas oil fields.|
|Description:||For more about the East-West Center, see http://www.eastwestcenter.org/|
|Appears in Collections:||Economics [Working Papers]|
Please contact firstname.lastname@example.org if you need this content in an alternative format.
Items in ScholarSpace are protected by copyright, with all rights reserved, unless otherwise indicated.