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Abandonment option of mature oil fields: A case applied to the Brazilian onshore oil and gas sector

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  • Lucena Aiube, Fernando Antonio
  • Tito, Edison
  • Asrilhant, Boris

Abstract

The recent changes in the concession rules for mature fields and exploratory blocks, implemented by the Brazilian Oil, Gas, and Biofuels Agency (ANP), along with Petrobras’ sales of onshore fields, have ushered in a new business environment for players in the Brazilian upstream sector. Within this context of increased liquidity and greater flexibility, the use of the Discounted Cash Flow methodology for investment decisions can potentially lead to erroneous managerial choices. This article examines the abandonment option for mature onshore oil fields using the Real Options methodology. It identifies the optimal time for abandonment and calculates the option’s value. Furthermore, the model takes into account the disconnection between the residual value and abandonment cost variables. The findings demonstrate that this consideration not only enhances the comprehension of managerial decisions but also enables more precise negotiation strategies.

Suggested Citation

  • Lucena Aiube, Fernando Antonio & Tito, Edison & Asrilhant, Boris, 2024. "Abandonment option of mature oil fields: A case applied to the Brazilian onshore oil and gas sector," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 78(3), November.
    • Handle: RePEc:fgv:epgrbe:v:78:y:2024:i:3:a:90329
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