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The Impact of the Relationship Between Operational Cost and Oil Prices on Economic Assessment in Oil and Gas Industry

In: Recent Developments in Data Science and Business Analytics

Author

Listed:
  • Lihui Zhu

    (School of Business Administration, China University of Petroleum)

  • Dongkun Luo

    (School of Business Administration, China University of Petroleum)

  • Xiaoyu Wang

    (School of Business Administration, China University of Petroleum)

  • Rui Guo

    (School of Business Administration, China University of Petroleum)

Abstract

In the long-term, changes in oil prices will certainly have an impact on the estimate of the project income, investment and costs, the variables are not mutually independent, but there is a correlation. Traditional economic evaluation methods tend to ignore the influence of parameter correlation, resulting in project evaluation deviations. In this article, we assume that oil prices obey geometric Brownian motion and mean-reverting stochastic process separately, taking into account the correlation between oil prices and operational costs, using the Monte Carlo model to simulate the project value and risk under different probability. The results show that if the linkage mechanism of the oil prices and operational costs is not considered, it is easy to overestimate the risk of the project, which leads to some feasible projects excluded.

Suggested Citation

  • Lihui Zhu & Dongkun Luo & Xiaoyu Wang & Rui Guo, 2018. "The Impact of the Relationship Between Operational Cost and Oil Prices on Economic Assessment in Oil and Gas Industry," Springer Proceedings in Business and Economics, in: Madjid Tavana & Srikanta Patnaik (ed.), Recent Developments in Data Science and Business Analytics, chapter 0, pages 83-89, Springer.
    • Handle: RePEc:spr:prbchp:978-3-319-72745-5_9
    DOI: 10.1007/978-3-319-72745-5_9
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