Oil and Gas Exploration Valuation and the Value of Waiting

Babak Jafarizadeh and Reidar Brumer Bratvold

The Engineering Economist, 2015, vol. 60, issue 4, 245-262

Abstract: The timing flexibility of investments in oil and gas assets can potentially add value. In this article, we examine the value of waiting in exploration projects and propose a real option–based valuation method using least-squares Monte Carlo simulation. We show that the dynamics of the oil and gas prices have a large impact on the value of the option to wait, especially for projects with long lead times and durations. The uncertainty in the forward price curve is modeled using a two-factor stochastic price process. The article also presents the valuation method in the form of MATLAB functions and routines that can be used as an efficient test and analysis platform using the industry-standard input formats.

Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://hdl.handle.net/10.1080/0013791X.2015.1045647 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:uteexx:v:60:y:2015:i:4:p:245-262

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/UTEE20

DOI: 10.1080/0013791X.2015.1045647

Access Statistics for this article

The Engineering Economist is currently edited by Sarah Ryan

More articles in The Engineering Economist from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().