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

Conference paper
Part of the Springer Proceedings in Business and Economics book series (SPBE)

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 

Notes

Acknowledgments

Funding for this work was supported by International Science and technology support program (2014BAC01B02).

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Copyright information

© Springer International Publishing AG, part of Springer Nature 2018

Authors and Affiliations

  1. 1.School of Business Administration, China University of PetroleumBeijingChina

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