Research On The Investment Decision-making Of Oil-gas Exploration And Development Based On Real Option

The investment decision-making of oil-gas exploration and development throughout the course from exploration to production, and there are a lot of uncertain factors. The traditional tools for investment decision-making are fear of uncertainty and they underestimated the value of project. Real option proves that the higher uncertainty is, the higher project value is. Real option is not only a technical tool for the flexibility of investment similar to financial option, but also a kind of thinking, and it greatly promotes the scientific process of the investment decision-making in the project management. The real option revises the hypothesis in the traditional tools, which believes that the investment of oil-gas exploration and development is reversible and rigid. It attaches importance to the phased appraise at every stage of the investment. The way of adopting risk-free interest is objective and accurate. Real option considers not only the inherent value of the project based on traditional cash flow, but also the strategic value that benefit the corporation in the future and the flexibility value, thus it can assess the total value of the project perfectly and rationally. By knowing the relevant factors of the investment decision-making of oil-gas exploration and development and the principle of real option, the paper discerned the real option character of oil-gas exploration and development, refined five variables in B-S model as two variables innovatively, and confirmed the two-dimensional investment decision-making criterion of oil-gas exploration by combining the real option with net present value method. The investment decision-making about the timing of oil-gas development can use the binomial method. The Geometric Brownian Motion of stochastic process is the most widely used in financial field and practice. But indicated by a large number of research, the oil price follows Mean Reversion Model. Based on the hypothesis, the model of option to shut-down and restart was constructed. Volatility is a very important parameter, there will be a model for it. There also present two examples and the view of the progress of the real option.