Integrating Technological And Financial Uncertainty For Offshore Oil Exploration: An Application Of Multiobjective Decision Analysis

Oil companies are presently facing a competitive scene due to high price volatility and increasing complex decisions. In this scenario, firms should have adequate decision tools to evaluate cost and benefit impacts from the financial, environmental, technological, and market factors. This paper describes a methodology where a decision-maker explicitly considers two objectives when evaluating new petroleum opportunities in an offshore area - financial and technological gain. The Multi-Attribute Theory (MAUT) is used simultaneously to consider the technological challenges of the capital budgeting process in an exploration and production firm. Prospects from five different basins in an offshore area comprising distinct risk and objectives were selected for the proposed study. The methodology presented in this work demonstrates that in some mature areas the advantages to exploration are restricted further only to financial gain, based upon the present economic potential of the basin. On the other hand, other seemingly less attractive areas, such as deep horizons in deepwater basins, may represent potential targets for new exploration as a result of the interaction of financial gain and technology advancement. The proposed model can provide significant insight into petroleum exploration and guide managers to better investment decisions as well as provide information to decision makers regarding the efficiency of technological gain at the firm level.35432000- Deep water program (2000) PROCAP 2000 Overview, , http://www.petrobras.com.br, PetrobrasHeinemann, R.F., Donlon, W.P., Hoefner, M.L., Quantifying the Value of E&P Technology (1998) Jour. Canadian Petroleum Technology, 37 (2), pp. 56-60Lanford, H.W., Technological forecasting methodologies Chapter 4: Analytical Tecniques: Advanced trend Analysis (1972) American Management Association, pp. 59-91noteMartino, J.P., (1990) Technological Forecasting for Decision Making, p. 460. , New York, McGraw-Hill 3 rd edNepomuceno, F., Suslick, S.B., Walls, M.R., Managing technological and financial uncertainty: A decision science approach for strategic drilling decisions (1999) Journ.Int.Mathematical Geology, 8 (3), pp. 193-203. , Natural Resources ResearchKeeney, R.L., Raiffa, H., (1976) Decisions with Multiple Objectives: Preferences and Value Tradeoffs, p. 569. , Cambridge: Cambridge University PressWalls, M.R., Corporate risk tolerance and capital allocation: A practical approach to implementing an exploration risk policy (1995) Jour. of Petroleum Technology, 47 (4), pp. 307-311Walls, M.R., Dyer, J.S., Risk propensity and firm performance: A study of the petroleum exploration industry (1996) Management Science, 42 (7), pp. Julynot