About This Item

Share This Item

The AAPG/Datapages Combined Publications Database

Indonesian Petroleum Association

Abstract


19th Annual Convention Proceedings (Volume 1), 1990
Pages 409-417

Risk Analysis and Economic Evaluation in Capital Investment Using Simulation Techniques

Hayu Susilo Prabowo, Entang Hadisasmita

Abstract

Calculating prospect or well economics and using profitability criteria is a step that decision makers have taken. These criteria provide a measure of prospect or well profitability such as rate of return, payout time, and net present value. When the analyst has a good understanding of his data and there is very little uncertainty, these profitability indicators can be used confidently to evaluate and select prospects or projects. However, when uncertainties in the data are high, these criteria are a poor measure of investment worth because they do not provide a quantitative estimate of the chance or probability of achieving a certain economic value. The next logical step in evaluating investments which exhibit a high degree of uncertainty in the data is to add statistical techniques to the evaluation process.

Simulation techniques provide an extremely yet conceptually straightforward, way to solve problem. The basic idea of simulation consists of building a conceptual model of the uncertain real-world problem being studied combined with economic sensitivity analyses to produce a statistical estimate of the profitability of a certain prospect or project. The results of a simulation study, a profit distribution, provide a convenient way to graphically protray to management all of the possible outcomes of the decision option.


Pay-Per-View Purchase Options

The article is available through a document delivery service. Explain these Purchase Options.

Watermarked PDF Document: $14
Open PDF Document: $24