Field Development Decision Making Under Uncertainty: A Real Option Valuation Approach

Real Option Valuation (ROV) has been developed to assist the decision making process for capital investments, whether R&D programs for new drugs, new petrochemical plants, leases of offshore and onshore acreage, etc. The proposed work demonstrates that the ROV can be a useful technique and toolbox for the selection of different field development concepts and alternatives. Instead of using discounted cash flow (DCF) techniques only, the possibility of adding ROV as part of the decision analysis process and the contributions that this approach will accomplish are described. The modeling proposed shall be customized to each company's preferences and has been used only for illustrative purposes. A longer debate shall be taken inside each company to provide to its asset managers and strategic decision-makers a toolbox, which includes the ROV as an add-on to the DCF techniques