Oilfield Abandonment Decision by Applying a Fuzzy Pay-Off Method for Real Options

Abstract

This work presents a model for valuing the abandonment real option of an oilfield. The model uses a fuzzy scenario-based real option valuation method named Center of Gravity Fuzzy Pay-Off Method (CoG-FPOM). This method uses fuzzy numbers as possibility distributions and was recently proposed to overcome an inconsistency detected within the original Fuzzy Pay-Off Method. The model is simple to use and can evidence the value added by this kind of analysis in the digital oilfield context. One example of the application of the model is presented and its results show that taking the abandonment option into account in this case increases the oilfield value.