Next Article in Journal
Best Practices for Recovering Rural Abandoned Towers through the Installation of Small-Scale Biogas Plants
Previous Article in Journal
Quantifying Cathode Water Transport via Anode Relative Humidity Measurements in a Polymer Electrolyte Membrane Fuel Cell
Article Menu
Issue 8 (August) cover image

Export Article

Open AccessArticle
Energies 2017, 10(8), 1218; https://doi.org/10.3390/en10081218

Valuation of Real Options in Crude Oil Production

1
Basque Centre for Climate Change, Sede Building 1, 1st Floor, Scientific Campus, University of the Basque Country, 48940 Leioa, Spain
2
Department of Financial Economics II and Institute of Public Economics, University of the Basque Country, Av. Lehendakari Aguirre 83, 48015 Bilbao, Spain
*
Author to whom correspondence should be addressed.
Received: 26 June 2017 / Revised: 10 August 2017 / Accepted: 13 August 2017 / Published: 17 August 2017
View Full-Text   |   Download PDF [4054 KB, uploaded 20 August 2017]   |  

Abstract

Oil producers are going through a hard period. They have a number of real options at their disposal. This paper addresses the valuation of two of them: the option to delay investment and the option to abandon a producing field. A prerequisite for this is to determine the value of a producing well. For this purpose we draw on a stochastic model of oil price with three risk factors: spot price, long-term price, and spot price volatility. This model is estimated with spot and futures West Texas Intermediate (WTI) oil prices. The numerical estimates of the underlying parameters allow calculate the value of a producing well over a fixed time horizon. We delineate the optimal boundary that separates the investment region from the wait region in the spot price/unit cost space. We similarly draw the boundary governing the optimal exercise of the option to abandon and the one governing the active/inactive production decision when there is no such option. View Full-Text
Keywords: oil price; stochastic processes; futures prices; least-squares Monte Carlo; option to delay; option to abandon oil price; stochastic processes; futures prices; least-squares Monte Carlo; option to delay; option to abandon
Figures

Figure 1

This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).
SciFeed

Share & Cite This Article

MDPI and ACS Style

Abadie, L.M.; Chamorro, J.M. Valuation of Real Options in Crude Oil Production. Energies 2017, 10, 1218.

Show more citation formats Show less citations formats

Note that from the first issue of 2016, MDPI journals use article numbers instead of page numbers. See further details here.

Related Articles

Article Metrics

Article Access Statistics

1

Comments

[Return to top]
Energies EISSN 1996-1073 Published by MDPI AG, Basel, Switzerland RSS E-Mail Table of Contents Alert
Back to Top