The University of Southampton
University of Southampton Institutional Repository

Risk measurement of international oil and gas projects based on the Value at Risk method

Risk measurement of international oil and gas projects based on the Value at Risk method
Risk measurement of international oil and gas projects based on the Value at Risk method
International oil and gas projects feature high capital-intensity, high risks and contract diversity. Therefore, in order to help decision makers make more reasonable decisions under uncertainty, it is necessary to measure the risks of international oil and gas projects. For this purpose, this paper constructs a probabilistic model that is based on the traditional economic evaluation model, and introduces value at risk (VaR) which is a valuable risk measure tool in finance, and applies VaR to measure the risks of royalty contracts, production share contracts and service contracts of an international oil and gas project. Besides, this paper compares the influences of different risk factors on the net present value (NPV) of the project by using the simulation results. The results indicate: (1) risks have great impacts on the project’s NPV, therefore, if risks are overlooked, the decision may be wrong. (2) A simulation method is applied to simulate the stochastic distribution of risk factors in the probabilistic model. Therefore, the probability is related to the project’s NPV, overcoming the inherent limitation of the traditional economic evaluation method. (3) VaR is a straightforward risk measure tool, and can be applied to evaluate the risks of international oil and gas projects. It is helpful for decision making.
1995-8226
199–216
Cheng, Cheng
cc96d80a-3209-420a-a182-58fbfabf8cfd
Wang, Zhen
af8604e4-250c-4c42-93bf-37d791470816
Liu, Mingming
69f5116e-5c72-458c-85ed-bd4889678d0d
Ren, Xiaohang
970abdf4-ff20-4244-9952-f9ee910736ee
Cheng, Cheng
cc96d80a-3209-420a-a182-58fbfabf8cfd
Wang, Zhen
af8604e4-250c-4c42-93bf-37d791470816
Liu, Mingming
69f5116e-5c72-458c-85ed-bd4889678d0d
Ren, Xiaohang
970abdf4-ff20-4244-9952-f9ee910736ee

Cheng, Cheng, Wang, Zhen, Liu, Mingming and Ren, Xiaohang (2019) Risk measurement of international oil and gas projects based on the Value at Risk method. Petroleum Science, 16 (1), 199–216. (doi:10.1007/s12182-018-0279-1).

Record type: Article

Abstract

International oil and gas projects feature high capital-intensity, high risks and contract diversity. Therefore, in order to help decision makers make more reasonable decisions under uncertainty, it is necessary to measure the risks of international oil and gas projects. For this purpose, this paper constructs a probabilistic model that is based on the traditional economic evaluation model, and introduces value at risk (VaR) which is a valuable risk measure tool in finance, and applies VaR to measure the risks of royalty contracts, production share contracts and service contracts of an international oil and gas project. Besides, this paper compares the influences of different risk factors on the net present value (NPV) of the project by using the simulation results. The results indicate: (1) risks have great impacts on the project’s NPV, therefore, if risks are overlooked, the decision may be wrong. (2) A simulation method is applied to simulate the stochastic distribution of risk factors in the probabilistic model. Therefore, the probability is related to the project’s NPV, overcoming the inherent limitation of the traditional economic evaluation method. (3) VaR is a straightforward risk measure tool, and can be applied to evaluate the risks of international oil and gas projects. It is helpful for decision making.

Text
Risk measurement of international oil and gas proj - Version of Record
Available under License Creative Commons Attribution.
Download (4MB)

More information

Accepted/In Press date: 12 July 2018
e-pub ahead of print date: 23 November 2018
Published date: February 2019

Identifiers

Local EPrints ID: 426459
URI: http://eprints.soton.ac.uk/id/eprint/426459
ISSN: 1995-8226
PURE UUID: dfcc893d-3e98-41f5-9302-96d45c5ac58c

Catalogue record

Date deposited: 28 Nov 2018 17:30
Last modified: 29 Jan 2020 16:32

Export record

Altmetrics

Download statistics

Downloads from ePrints over the past year. Other digital versions may also be available to download e.g. from the publisher's website.

View more statistics

Atom RSS 1.0 RSS 2.0

Contact ePrints Soton: eprints@soton.ac.uk

ePrints Soton supports OAI 2.0 with a base URL of http://eprints.soton.ac.uk/cgi/oai2

This repository has been built using EPrints software, developed at the University of Southampton, but available to everyone to use.

We use cookies to ensure that we give you the best experience on our website. If you continue without changing your settings, we will assume that you are happy to receive cookies on the University of Southampton website.

×