The Impact of the Relationship Between Operational Cost and Oil Prices on Economic Assessment in Oil and Gas Industry

Lihui Zhu, Dongkun Luo, Xiaoyu Wang and Rui Guo ()
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Lihui Zhu: School of Business Administration, China University of Petroleum
Dongkun Luo: School of Business Administration, China University of Petroleum
Xiaoyu Wang: School of Business Administration, China University of Petroleum
Rui Guo: School of Business Administration, China University of Petroleum

Chapter Chapter 9 in Recent Developments in Data Science and Business Analytics, 2018, pp 83-89 from Springer

Abstract: Abstract In the long-term, changes in oil prices will certainly have an impact on the estimate of the project income, investment and costs, the variables are not mutually independent, but there is a correlation. Traditional economic evaluation methods tend to ignore the influence of parameter correlation, resulting in project evaluation deviations. In this article, we assume that oil prices obey geometric Brownian motion and mean-reverting stochastic process separately, taking into account the correlation between oil prices and operational costs, using the Monte Carlo model to simulate the project value and risk under different probability. The results show that if the linkage mechanism of the oil prices and operational costs is not considered, it is easy to overestimate the risk of the project, which leads to some feasible projects excluded.

Keywords: Oil price; Operating costs; Relevant; NPV; Monte Carlo simulation (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-319-72745-5_9

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DOI: 10.1007/978-3-319-72745-5_9

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