PDF pdf 239KB

Real Options With Value of Information: A Case In Oil and Gas Exploration

Oil and gas (O&G) companies have changed their profile in pursuing potential reserves in new frontier areas. Entry into business opportunities has been cautious, as the ongoing energy transition requires positioning in reserves with lower carbon footprints and pollutants. Minimal investments are made in the exploratory period and are essential in separating an environmentally and economically efficient portfolio. Thus, an investment program in information to de-risk exploratory prospects is essential to avoid failures and better estimate the commercially recoverable volume before a high-cost investment.

Usually, the decision-making does not consider calculating information benefit for exploratory block acquisition. When it is done, the value of the decision does not add the benefit of postponing the high-cost investment of a wildcat well. This paper systematizes the appreciation of the option to invest in the exploratory well combined with the de-risking information investment, with binomial and least-square Monte Carlo approaches, associating the theory of real options (RO) with the value of information (VOI).