Switching from Oil to Gas Production - Decisions in a Field's Tail Production Phase

Støre, Kristian; Fleten, Stein–Erik; Hagspiel, Verena; Nunes, Cláudia

doi:10.2139/ssrn.2867118

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2017

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(2 citation statements)

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“…Using the approach presented in Støre et al (2016) to solve this system, we find the explicit solution for the boundary 3 :b…”

Section: Theoremmentioning

confidence: 99%

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Investment Decisions with Two-Factor Uncertainty

et al. 2017

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This paper considers investment problems in real options with non-homogeneous two-factor uncertainty. It shows that, despite claims made in the literature, the method used to derive an analytical solution in one dimensional problems cannot be straightforwardly extended to problems with two stochastic processes. To illustrate, we analyze an investment problem with two stochastic revenue streams and a constant sunk cost. We show that a semi-analytical approach leads to a sub-optimal investment policy. The main message of our paper is that non-homogeneous investment problems can only be solved numerically.

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“…Using the approach presented in Støre et al (2016) to solve this system, we find the explicit solution for the boundary 3 :b…”

Section: Theoremmentioning

confidence: 99%

“…Adkins and Paxson (2016) consider the optimal investment policy for an energy facility with price and quantity uncertainty under different subsidy schemes. Støre et al (2016) determine the optimal timing to switch from oil to gas production. Both the oil price and the gas price are considered stochastic.…”

Section: Introductionmentioning

confidence: 99%