Abstract
Irreversible investments made with incomplete information are the mainstay of the petroleum industry. Sequential, non-repetitive investment decisions with alternative pathways associated with exploration through full-field development are common. We demonstrate a policy development approach that combines the Bellman equation for dynamic programming with a real options valuation algorithm. This represents the first demonstration of the mathematical union of the two techniques for branching decision pathways, producing a generalized policy development framework that provides risk management of investments. Production expansion investment decisions for a Central Asian gas condensate field are analyzed using the framework.
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