Evaluation of an improved petroleum recovery project in Mexico through the binomial method
DOI:
https://doi.org/10.24275/uam/azc/dcsh/ae/2020v35n90/SantiagoKeywords:
Binomial method, volatility, Markov chains, enhanced oil recovery, recovery factorAbstract
In Mexico, new techniques are being sought to extract the two third parts of oil that are not conventionally extracted. Under a scenario characterized by being flexible and uncertain, in the present investigation, the economic evaluation of an improved Oil Recovery project (EOR) is carried out by the injection of alkaline, surfactant and polymer chemicals (ASP) by two methods: traditional and real options valuation. Additionally, the uncertainty level of the net income flows (S0) is determined using the binomial methods and Markov chains. The results showed that the traditional assessment of the NPV of the project was positive ($ 120,157 billion dollars) obtained in a maximum term of operation of sixteen years; however, under the valuation of the real option, the modified NPV of the project ((NPV) ̅) was higher ($ 124,807 billion dollars). In terms of the value of the European abandonment option; this was higher under the Markov chain probabilities than under the risk neutral probabilities. In this regard, the Wald-Wolfowitz statistical test showed that oil price returns should be modeled as an independent variable, therefore the binomial model is the correct method for calculating probabilities. It is concluded that the real options valuation method is adequate given the existence of flexibility and uncertainty in the EOR-ASP investment project, and that the value of the option increases as there is a greater dispersion in the values projected by the binomial method.
JEL Classification: G11; G32.
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References
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