Download or read book Reserve Volume Under Oil Price Uncertainty written by Marco Antonio Dias and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Volumes of oil reserves are important indicators of energy availability in the future since it is still the world's main source of energy. In this paper, we estimate the oil reserve volume under oil price uncertainty using the traditional discounted cash flow (DCF) and the real options theory (ROT). Adopted by oil companies and regulators, DCF uses expected cash flow to report the cumulative oil production (reserves) up to the end of the field's economic life (abandonment). ROT considers the value of waiting for better market conditions in each oil price scenario. For the expected volume computation with the abandonment option, we introduce pruned Pascal's algorithm to assess the probability of continuing to produce in any node from the binomial tree. Ex-post, the ROT abandonment rule implies greater reserve volume because it considers the value of waiting for a better oil price before exercising the abandonment option. However, ex-ante, we found that DCF is optimistic about the reserve volume when compared with the ROT approach, except for mature fields (where DCF is pessimistic). If we regard the ROT as the most rigorous, it means that the new oilfields reported reserves with DCF are optimistic.