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

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.

Construction of a Coupled Mathematical Model of Oil and Gas Risk Relying on Distributed Computing

“…In addition, he also used the simulation results to compare the impact of different risk factors on the project's net present value. e results show that (1) Risk has a great influence on the project's net present value; therefore, if the risk is ignored, the decision may be wrong; (2) e simulation method is used to simulate the random distribution of risk factors in the probability model, so the probability is related to the project's net present value [5]. Trofimov V T found that onshore oil and gas production is often accompanied by accidents of varying severity and negative consequences.…”

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