Investment Timing and Environmental Assessmment Impact on Decision-Making Process in the Brazilian Petroleum Industry

摘要

Environmental assessment affects negatively therndecision to invest when the production oil projects arernevaluated under the traditional analytical methods suchrnas net present value (NPV) because the environmentalrnrequirements generate a delay in the start-up process ofrnthe project. Contrarily, under real options approach ifrnthe delay period provoked by legal environmentalrnrequirements is close to the investment timingrn(postponement period) some decisions to invest may bernunaffected. So, the decision-making process according tornthe real option theory is more realistic by takingrnuncertainty over future costs and output’s prices,rninvestment irreversibility, and managerial flexibility (asrnoption to delay investment) in the decision to invest, sornthat the decision is not now or never (as in the case ofrnNPV), but now or wait in the real option approach. Thisrnpaper proposes an option model based on stochasticrnbehavior of output’s prices and its relationship withrnoptimal rules of investments to estimate the investmentrntiming period. The period length will be compared withrntypical production delay time in projects due tornenvironmental restrictions in a offshore oil project inrnBrazil.