Investment analysis of unconventional hydrocarbon resources under uncertainty

Investment models for decision making on unconventional hydrocarbon resource development in Europe must be based on realistic estimates of well productivity, gas price projections and reliable data on costs of the project. In this analysis we assess the economic feasibility of three different investments projects in coal bed methane production located in two European regions, the Cheshire and the Midland Valley in the United Kingdom and the Lorraine in France. We combine the traditional framework of the investment analysis – and compute the NPV, IRR and break even point – with the probabilistic analysis of uncertain parameters that affect the business case of the investments. Our results show major differences in the profitability of the considered projects, mainly due to differences in initial CAPEX. The sensitivity analysis allows to rank these variables in terms of which of them mostly affect the results of the profitability: CAPEXì/well; discount rate; gas prices in years 5-8 and 4, 9-10 of the project; corporate tax; and finally the gas prices in years 11-13 of the investment.

COSTESCU Anca;  SPISTO Amanda; 

2017-09-20

IEEE

JRC106105

978-1-5090-5499-2,   

2165-4093,   

https://publications.jrc.ec.europa.eu/repository/handle/JRC106105,   

10.1109/EEM.2017.7981848,