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Title: Real option valuation of a portfolio of oil projects
Author: Van Enckevort, Anna Marie
ISNI:       0000 0001 3542 3634
Awarding Body: Imperial College London (University of London)
Current Institution: Imperial College London
Date of Award: 2007
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Various methodologies exist for valuing companies and their projects. We address the problem of valuing a portfolio of projects within companies that have infrequent, large and volatile cash flows. Examples of this type of company exist in oil exploration and development and we will use this example to illustrate our analysis throughout the thesis. The theoretical interest in this problem lies in modeling the sources of risk in the projects and their different interactions within each project. Initially we look at the advantages of real options analysis and compare this approach with more traditional valuation methods, highlighting strengths and weaknesses of each approach in the light of the thesis problem. We give the background to the stages in an oil exploration and development project and identify the main common sources of risk, for example commodity prices. We discuss the appropriate representation for oil prices; in short, do oil prices behave more like equities or more like interest rates? The appropriate representation is used to model oil price as a source of risk. A real option valuation model based on market uncertainty (in the form of oil price risk) and geological uncertainty (reserve volume uncertainty) is presented and tested for two different oil projects. Finally, a methodology to measure the inter-relationship between oil price and other sources of risk such as interest rates is proposed using copula methods.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available