Uncertainty and irreversible investment : an empirical analysis of development of oilfields on the UKCS
The aim of this paper is to analyse the implications of the theory of irreversible investment under uncertainty for investment in oilfields on the United Kingdom Continental Shelf (UKCS). We model the decision to proceed with the development investment as an optimal stopping problem and apply the es...
| Main Authors: | , , |
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| Format: | Working paper |
| Language: | English |
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Oxford Institute for Energy Studies
1992
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| _version_ | 1797073023998623744 |
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| author | Favero, C Pesaran, M Sharma, S |
| author_facet | Favero, C Pesaran, M Sharma, S |
| author_sort | Favero, C |
| collection | OXFORD |
| description | The aim of this paper is to analyse the implications of the theory of irreversible investment under uncertainty for investment in oilfields on the United Kingdom Continental Shelf (UKCS). We model the decision to proceed with the development investment as an optimal stopping problem and apply the established theory to derive the determinants of the optimal policy. Data OH the length of the time period between discovery and development are available for individual oilfields on the UKCS. The theory is empirically examined by exploring the significance of the determinants of the optimal policy in explaining the variation in the development lag of individual oilfields. Applying statistical duration analysis to the North Sea data, we find a strong effect of expected price and associated price uncertainty on the length of the appraisal stage of the investment projects. |
| first_indexed | 2024-03-06T23:16:04Z |
| format | Working paper |
| id | oxford-uuid:672bf025-d3c4-4791-aaa9-27aefe9b4830 |
| institution | University of Oxford |
| language | English |
| last_indexed | 2024-03-06T23:16:04Z |
| publishDate | 1992 |
| publisher | Oxford Institute for Energy Studies |
| record_format | dspace |
| spelling | oxford-uuid:672bf025-d3c4-4791-aaa9-27aefe9b48302022-03-26T18:36:32ZUncertainty and irreversible investment : an empirical analysis of development of oilfields on the UKCSWorking paperhttp://purl.org/coar/resource_type/c_8042uuid:672bf025-d3c4-4791-aaa9-27aefe9b4830EnglishOxford University Research Archive - ValetOxford Institute for Energy Studies1992Favero, CPesaran, MSharma, SThe aim of this paper is to analyse the implications of the theory of irreversible investment under uncertainty for investment in oilfields on the United Kingdom Continental Shelf (UKCS). We model the decision to proceed with the development investment as an optimal stopping problem and apply the established theory to derive the determinants of the optimal policy. Data OH the length of the time period between discovery and development are available for individual oilfields on the UKCS. The theory is empirically examined by exploring the significance of the determinants of the optimal policy in explaining the variation in the development lag of individual oilfields. Applying statistical duration analysis to the North Sea data, we find a strong effect of expected price and associated price uncertainty on the length of the appraisal stage of the investment projects. |
| spellingShingle | Favero, C Pesaran, M Sharma, S Uncertainty and irreversible investment : an empirical analysis of development of oilfields on the UKCS |
| title | Uncertainty and irreversible investment : an empirical analysis of development of oilfields on the UKCS |
| title_full | Uncertainty and irreversible investment : an empirical analysis of development of oilfields on the UKCS |
| title_fullStr | Uncertainty and irreversible investment : an empirical analysis of development of oilfields on the UKCS |
| title_full_unstemmed | Uncertainty and irreversible investment : an empirical analysis of development of oilfields on the UKCS |
| title_short | Uncertainty and irreversible investment : an empirical analysis of development of oilfields on the UKCS |
| title_sort | uncertainty and irreversible investment an empirical analysis of development of oilfields on the ukcs |
| work_keys_str_mv | AT faveroc uncertaintyandirreversibleinvestmentanempiricalanalysisofdevelopmentofoilfieldsontheukcs AT pesaranm uncertaintyandirreversibleinvestmentanempiricalanalysisofdevelopmentofoilfieldsontheukcs AT sharmas uncertaintyandirreversibleinvestmentanempiricalanalysisofdevelopmentofoilfieldsontheukcs |