Economic Analysis and Generic Algorithm for Optimizing the Investments Decision-Making Process in Oil Field Development

Catalin Popescu,Sorin Alexandru Gheorghiu

doi:10.3390/en14196119

Abstract

Due to the substantial amounts of money involved and the complex interactions of a number of different factors, managers of oil and gas companies are faced with significant challenges when making investment decisions that will increase business efficiency and achieve competitive advantages, especially through cost control. Due to the various uncertainties of the current period, optimal investment strategies are difficult to determine. Thus, through an economic analysis that includes data analysis, quantitative risk analysis scenarios, modelling and simulations, a work framework, in the form of a generic algorithm, is proposed with the aim of generating a complex procedure for optimizing investment decisions in oil field development. A complex set of elements is considered in the analysis: costs (operational expenditures (OPEX) and capital expenditures (CAPEX), daily drilling rig costs), prices (oil, gas, separation and water injection preparation), production profiles, different types of taxes and discount factors. Above all, oil price volatility plays an essential role and creates uncertainty in relation to profitability and the strategic investment decisions made by oil exploration and production companies.

Highlights

IntroductionGlobal 500 ranking of the largest companies in terms of revenue for 2020, four of the top 10 corporations operate in the oil industry, while two other companies in the top 10 operate in the energy sphere as their major field and in the oil sector, subsidiarily [1]
Oleksandr MelnychenkoAs with any scientific paper, it is necessary to demonstrate, on the one hand, the opportunity presented by the study, and, on the other, its topicality and relevance.Regarding the research opportunity, it should be said that, according to the FortuneGlobal 500 ranking of the largest companies in terms of revenue for 2020, four of the top 10 corporations operate in the oil industry, while two other companies in the top 10 operate in the energy sphere as their major field and in the oil sector, subsidiarily [1]
These facts demonstrate the importance and the significance of the contributions made by the petroleum sector to the world economy, such that any study or research concerned with investment decisions in this sector, given the amounts of money considered and circulated, ought to be seen as important

Summary

Introduction

Global 500 ranking of the largest companies in terms of revenue for 2020, four of the top 10 corporations operate in the oil industry, while two other companies in the top 10 operate in the energy sphere as their major field and in the oil sector, subsidiarily [1] These facts demonstrate the importance and the significance of the contributions made by the petroleum sector to the world economy, such that any study or research concerned with investment decisions in this sector, given the amounts of money considered and circulated, ought to be seen as important. It must be stated from the beginning that the amounts of money invested in the oil industry represent hundreds of millions, even billions of dollars every year

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