Real Option Valuation vs. DCF Valuation - An application to a North Sea oilfield

摘要: We examine whether the value of an undeveloped oilfield is affected by using real option valuation. Applying a two-factor model dependent on spot price Brent and convenience yield implies premium over certainty equivalent method ranging from 20-1000%, for reasonable prices. However, risk-adjusted can be negligible since values are forecasts managers.This does not mean that criterion should neglected, considering its implications strategic decision when to optimally invest. The approach suggests investment optimal whenever oil prices surpass $15.69 per barrel, whereas analysis production at above $26.72. Moreover, we find evidence positive market risk IPE, strongly disagreeing with economic theory.