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Optimal oil extraction as a multiple real option

Abstract:

We study optimal oil extraction strategy and the value of an oil field using a multiple real option approach. Extracting a barrel of oil is similar to exercising a call option and optimal strategies lead to deferring production when oil prices are low and when volatility is high. We show that, in theory, the net present value of a country's oil reserves is increased significantly (by 100 percent, in the most extreme case) if production decisions are made conditional on oil prices. We also sh...

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Publication status:
Published

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Publisher:
University of Oxford
Series:
OxCarre Papers
Publication date:
2011-09-12
Paper number:
64
Keywords:
Pubs id:
1143870
Local pid:
pubs:1143870
Deposit date:
2020-12-15

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