DETERMINATION OF THE MOST ADEQUATE OIL RIG FLEET USING THE REAL OPTIONS APPROACH

Autores

  • Albino Lopes d’Almeida Petrobrás

Palavras-chave:

Real Options, Petroleum, Drilling, Rig, Rig day-rate

Resumo

Oil drilling is a complex activity, involving onshore and offshore drilling and production units, which vary in size and degree of technological complexity. It is a risky business, with high costs and variable remuneration in time, subject to market conditions (e.g. oil price and rig availability). Drilling activity is as an American option, which can be exercised at any time until its expiration, temporarily or totally interrupted at any time, and pays dividends. This work aims to assist an oil drilling rig owner in deciding among different options (operation, temporary suspension, exit from business) and to determine the most adequate drilling rig fleet composition, based on the real options approach Many variables are involved in the process: rig day-rate, new rig acquisition cost, rig temporary suspension cost, rig reactivation cost, rig maintenance cost, rig operational  cost, rig abandonment cost, risk-free discount rate, convenience rate and rig day rate volatility. The best composition is obtained by determining optimal switches among the options supposing correspondent day-rate intervals associated with each rig type. The problem is represented by two sets of complex partial differential equations, which are solved by numerical methods. Finally, a sensitivity analysis is performed to present the effect on both the optimal decision rule (abandonment, temporary stopping, continuity, reactivation, business entry) and the rig value, taking into account the embedded options.

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Publicado

2013-05-14

Como Citar

Lopes d’Almeida, A. (2013). DETERMINATION OF THE MOST ADEQUATE OIL RIG FLEET USING THE REAL OPTIONS APPROACH. Revista Eletrônica De Administração, 13(2), 249–268. Recuperado de https://seer.ufrgs.br/index.php/read/article/view/39957