The Timing of Investment in Deepwater Heavy-Oil Opportunities With Uncertainty in OilPrice and Production Technology

摘要

Many offshore heavy oil discoveries in deep waters can bernconsidered valuable assets if new technologies are available torntransform geological successes into economic successesrnthrough projects of development and production. But, therernare some latent questions: I) how to forecast future technologyrnadvances in order to produce this heavy hydrocarbon?; ii) howrncompanies can estimate development cost for the next five tornten years?; iii) with which degree of certainty will newrntechnologies be available to reduce present production costsrnfor these oil types? This paper proposes the application of therntheory of option pricing for valuation and decision-making inrnopportunities to invest in projects to produce heavy oil in arndeep water environment. The first uncertain variable is oilrnprice, which evolves over time as a Geometric BrownianrnMotion. The second uncertain variable is the impact ofrnadvances of production technology on production cost thatrnevolves as a Poisson process. The assumptions in oil pricernmodeling are based on continuous fluctuations over time. Inrncase of production technology, we assume that advances takernplace in a discrete way through jumps that can represent gains,rnwhich may enable the firm to produce with greater efficiencyrnreducing costs. This timing model is applied for valuation andrndecision-making of a typical heavy-oil project located inrnCampos basin in Brazil (15 oAPI, 2900 m water-depth). Thisrnproduction includes 7 production and 7 injection wells.rnPreliminary results show that the investment-rule is far fromrnthat of traditional NPV (that is, invest as long as NPV>0),rnespecially in case of increasing oil pricing volatility and sizernand arrival of technological innovations.