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Petroleum property valuation

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dc.contributor.author Smith, James L. en_US
dc.contributor.other Massachusetts Institute of Technology. Center for Energy and Environmental Policy Research. en_US
dc.date.accessioned 2009-04-03T17:05:39Z
dc.date.available 2009-04-03T17:05:39Z
dc.date.issued 2003 en_US
dc.identifier 2003-011 en_US
dc.identifier.uri http://hdl.handle.net/1721.1/45004
dc.description.abstract This paper provides an overview of the principal economic methods employed to assess the value of petroleum properties. The difference between wellhead and in situ resource values is examined, as well as drawbacks inherent in the concept of "oil and gas equivalents." To be successful, any valuation method must correctly account for uncertainty - geologic as well as economic - and the value of flexible management in pursuit of optimal development and use of the resource. Although the traditional discounted cash flow (DCF) technique is workable and reasonably accurate in many applications, it presumes the analyst can clearly distinguish between systematic and non-systematic sources of risk. The real options approach may be better suited for applications where compound risks and managerial flexiibility are likely to have a significant impact on operations and economic performance. Options-based approaches have been employed within the industry for many years to account for the impact of price volatility and cost fluctuations. Assessing the value of a collection (portfolio) of geologically interdependent petroleum prospects requires a different form of real-options analysis since management holds the option to exploit information spillovers by exploiting prospects sequentially. Dependence among prospects gives value to this option and (perhaps contrary to popular belief) raises the value of the whole above the sum of its parts. en_US
dc.description.sponsorship Supported by the MIT Center for Energy and Environmental Policy Research. en_US
dc.format.extent 20 p en_US
dc.publisher MIT Center for Energy and Environmental Policy Research en_US
dc.relation.ispartofseries MIT-CEEPR (Series) ; 03-011WP. en_US
dc.title Petroleum property valuation en_US
dc.type Working Paper en_US
dc.identifier.oclc 53063543 en_US


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