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A Dynamic Programming Decision-Making Model of Investment Policy for Unconventional Oil Exploitation

  • Jinfeng Sun
  • Xiangpei Hu
Part of the Smart Innovation, Systems and Technologies book series (SIST, volume 15)

Abstract

In this paper we focus on investment policy problems of unconventional oil exploitation and set up a dynamic programming model to help decision makers decide how to allocate the limited resources among a set of unconventional oil projects to maximize the total expected profits from investment horizon. Firstly, the urgency and feasibility of developing unconventional oil were introduced. Secondly, the properties of unconventional oil resources and the difficulty and complexity of exploiting them were analyzed. Thirdly, a multi-stage decision model was developed to help oil companies select an optimal investment policy given return on investment. Finally, a numerical example was provided by applying the model through backward recursion algorithm. The results demonstrate that the dynamic programming model provides an effective and efficient decision support tool for optimal investment policy of unconventional oil exploitation.

Keywords

dynamic programming model unconventional oil exploitation investment policy backward recursion algorithm 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2012

Authors and Affiliations

  1. 1.Institute of Systems EngineeringDalian University of TechnologyDalianP.R. China
  2. 2.School of Economics and ManagementChina University of Petroleum (Huadong)QingdaoP.R. China

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