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Oilfield Abandonment Decision by Applying a Fuzzy Pay-Off Method for Real Options

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Applying Fuzzy Logic for the Digital Economy and Society

Part of the book series: Fuzzy Management Methods ((FMM))

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Abstract

This work presents a model for valuing the abandonment real option of an oilfield. The model uses a fuzzy scenario-based real option valuation method named Center of Gravity Fuzzy Pay-Off Method (CoG-FPOM). This method uses fuzzy numbers as possibility distributions and was recently proposed to overcome an inconsistency detected within the original Fuzzy Pay-Off Method. The model is simple to use and can evidence the value added by this kind of analysis in the digital oilfield context. One example of the application of the model is presented and its results show that taking the abandonment option into account in this case increases the oilfield value.

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Notes

  1. 1.

    In this work we only consider type-1 fuzzy sets, for which the truth value algebra is the set [0,  1].

  2. 2.

    The presented model uses three scenarios and triangular fuzzy numbers, but it can be adapted to four scenarios and trapezoidal fuzzy numbers or whatever scenario strategy the company uses.

  3. 3.

    The most common reasons are technical (life of equipment/facilities) or contractual (end of concession period).

  4. 4.

    The expected pay-off for the following year must always be discounted to the year of the analysis—in our example, the expected pay-off for year 11 must be discounted to year 10.

  5. 5.

    Managers of the petroleum exploration and production industry who have at least 10 years of experience in the planning/management/projection activity.

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Acknowledgements

The authors would like to acknowledge the great technical support received from Mikael Collan, Roberto Teodoro and from the members of the Research Center for Fuzzy Management Methods of the University of Fribourg. Roberto E. P. Borges acknowledges the financial support received from Capes/Brazil through the PDSE scholarship number 88881.131650/2016-01. Marco A. G. Dias acknowledges the financial support from Petrobras/Cenpes through the research project FlexWell.

Author information

Authors and Affiliations

  1. Universidade Federal do Rio Grande do Norte, Natal, Brazil

    Roberto Evelim Penha Borges & Adrião Duarte Dória Neto

  2. Université de Fribourg, Fribourg, Switzerland

    Andreas Meier

  3. Pontifícia Universidade Católica do Rio de Janeiro, Rio de Janeiro, Brazil

    Marco Antonio Guimarães Dias

Authors
  1. Roberto Evelim Penha Borges
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  2. Andreas Meier
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  3. Marco Antonio Guimarães Dias
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  4. Adrião Duarte Dória Neto
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Corresponding author

Correspondence to Roberto Evelim Penha Borges .

Editor information

Editors and Affiliations

  1. Department of Informatics, University of Fribourg, Fribourg, Switzerland

    Andreas Meier

  2. Human-IST Institute, University of Fribourg, Fribourg, Switzerland

    Edy Portmann

  3. Department of Computer Science, Universidad de las Fuerzas Armadas (ESPE), Sangolquí, Ecuador

    Luis Terán

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Borges, R.E.P., Meier, A., Dias, M.A.G., Neto, A.D.D. (2019). Oilfield Abandonment Decision by Applying a Fuzzy Pay-Off Method for Real Options. In: Meier, A., Portmann, E., Terán, L. (eds) Applying Fuzzy Logic for the Digital Economy and Society. Fuzzy Management Methods. Springer, Cham. https://doi.org/10.1007/978-3-030-03368-2_9

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