Marco Antonio Guimarães Dias

Petroleum Concessions with Extendible Options: Investment Timing and Value Using Mean Reversion and Jump Processes for Oil Prices

The owner of a petroleum exploration concession in Brazil has an investment option until the expiration date fixed by the governmental agency, which can be extended by additional cost. The value of these rights and the optimal investment timing are calculated by solving a stochastic optimal control problem of an American call option with extendible maturities. The uncertainty of the oil prices is modeled as a mix diffusion-jump process. Normal information arrival generates continuous mean-reverting process for oil prices, whereas a random abnormal information generates a discrete jump of random size. Comparisons are performed with the popular geometric Brownian process and also the quantification and analysis of alternative timing policies for the petroleum sector. O detentor da concessao de exploracao de petroleo no Brasil tem uma opcao de investimento ate uma data de expiracao fixada pela agencia governamental, a qual pode estender mediante um custo adicional. O valor desses direitos e a politica otima de investimento sao calculados resolvendo um problema de controle otimo estocastico de uma opcao americana de compra com maturidades estendiveis. A incerteza do preco do oleo e modelada como um processo de difusao misto (reversao a media + saltos). Informacoes normais geram um processo continuo de reversao a media para o preco do oleo, porem choques aleatorios produzem saltos discretos e estocasticos. Comparacoes com o tradicional movimento geometrico browniano sao realizadas bem como quantificacoes e analises de politicas alternativas otimas para o setor de petroleo.

Economic valuation of a toll road concession with traffic guarantees and the abandonment option

Governments worldwide have been encouraging private participation in transportation infrastructure. To increase the feasibility of a project, public-private partnership (PPP) may include guarantees or other support to reduce the risks for private investors. It is necessary to value these opportunities under a real options framework and thereby analyze the projects economic feasibility and risk allocation. However, within this structure, sponsors have an implicit option to abandon the project that should be simultaneously valued. Thus, this article proposes a hypothetical toll road concession in Brazil with a minimum traffic guarantee, a maximum traffic ceiling, and an implicit abandonment option. Different combinations of the minimum and maximum levels are presented, resulting in very high or even negative value added to the net present value (NPV). The abandonment option impacts the level of guarantee to be given. Governments should calibrate an optimal level of guarantees to avoid unnecessarily high costs, protect the returns of the sponsor, and lower the probability of abandonment.

Real Option Value Calculation by Monte Carlo Simulation and Approximation by Fuzzy Numbers and Genetic Algorithms

This chapter describes, in two parts, the methodology proposed for obtaining an approximation of the real option value and of the optimal decision rule for several project investment options by considering technical and market uncertainty.

ANEPI: Economic Analysis of Oil Field Development Projects under Uncertainty

The analysis of an option to develop (set up for production) a previously delimited oil field requires investments whose costs and whose benefits depend on the alternative chosen. Some alternatives include more wells than others; others present a different geometric distribution of the wells. There are also different types of wells (vertical, directional, horizontal, multilateral, etc.) which involve different types of investments and benefits. The combination of these aspects with others, such as: platform types; production flow system; drilling speed (rig availability); lifting method (gas lift, centrifugal pumping, etc.), oil recovery method, etc., makes this a complex optimization problem. In addition, alternatives to invest in information and even alternatives to simply wait for market conditions to improve must be taken into account. Flexibility is another aspect that needs to be considered in the concept of oil field development as a means by which to ensure that it will be possible to incorporate a future increase in production (expansion option) through additional optional wells, depending on the market conditions and on how the reservoir responds to the first months/years of production.