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Early offshore development risk analysis: ROV method uses International Accounting Standards

Talipova A.S., Pelmeneva A.A. (Gubkin State Oil and Gas University, RF, Moscow)


Offshore upstream development is known to be essentially cost-intensive, it involves higher risks and uncertainty. Moreover, the existing global oil price environment has largely limited company mobility (between 31 December 2015 and 16 January 2016 Brent price fell 22.5 %. from $37.60/bbl to $29.11/ bbl) for new project investment with many current projects appearing suspended. At the same time, most producers are now public companies, they assume IAS reporting and stringent rules for reserves calculations by category. Combined, this affects investment decisions concerning higher risk targets, calls for more detailed analysis and employment all feasible risk assessment tools. This paper addresses a real options valuation (ROV) method viewed as a project management and risk assessment instrument, while conventional models appear disappointing as they mostly fail to assess future benefits in full. Two fields in the Barents and the Kara Seas were chosen as actual examples of potential offshore exploration challenges.


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