Optimization of Exploration and Production Sharing Agreements Using the Maxi-Min and Nash Solutions

Saad Balhasan, Mohammed Alnahhal (), Shahrul Shawan, Bashir Salah, Waqas Saleem and Mosab I. Tabash
Additional contact information
Saad Balhasan: Chemical and Petroleum Engineering Department, American University of Ras Al Khaimah, Ras Al Khaimah P.O. Box 10021, United Arab Emirates
Mohammed Alnahhal: Mechanical and Industrial Engineering Department, American University of Ras Al Khaimah, Ras Al Khaimah P.O. Box 10021, United Arab Emirates
Shahrul Shawan: Chemical and Petroleum Engineering Department, American University of Ras Al Khaimah, Ras Al Khaimah P.O. Box 10021, United Arab Emirates
Bashir Salah: Department of Industrial Engineering, College of Engineering, King Saud University, P.O. Box 800, Riyadh 11421, Saudi Arabia
Waqas Saleem: Department of Mechanical and Manufacturing Engineering, Institute of Technology, F91 YW50 Sligo, Ireland
Mosab I. Tabash: College of Business, Al Ain University, Al Ain P.O. Box 64141, United Arab Emirates

Energies, 2022, vol. 15, issue 23, 1-19

Abstract: Cooperation between supply chain partners in the oil industry is essential, especially when oil prices suffer from fluctuations that affect the profitability of each party. An essential task in oil field development projects is to create an optimum agreement between the national oil company and the international oil company to guarantee agreement optimization. In this paper, the national oil company is the first party (FP) and the international oil company is the second party (SP). The paper’s purpose is to investigate the use of game theory to obtain the best agreement between the FP and SP in order to enhance the cooperation and reduce conflict. In this paper, Nash and Maxi-min solutions have been applied for the first time in a special type of petroleum agreement, called exploration and production sharing agreements (EPSA). This is conducted for a case study in Libya. The study considers nine negotiation factors (issues) in the EPSA, which are the share percent, the four “A” factors, and the four “B” factors, which are usually affected by the fluctuations of oil prices; and the study investigates their effect on the total payoff function, the net present value (NPV), and internal rate of return (IRR) for both parties. The Maxi-min solution has shown an improvement in the NPV and IRR of the SP, where NPV increased from USD 148 million to USD 195 million, and IRR from 15.65% to 17.01%. The Nash solution has shown a little more improvement than the Maxi-min solution in the NPV and IRR for the SP, where the NPV and IRR have increased from USD 148 million to USD 222 million and from 15.65% to 17.94%, respectively.

Keywords: oil fields; oil companies; negotiation; game theory; Maxi-min solution; Nash solution; agreement optimization (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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