Factor analysis of trends in energy and metals production and consumption in developed and developing countries

This paper presents a methodology used to combine energy and mineral market variables between Less Developed Countries (LDCs) and Developed Countries (OECD) over the past 24 years (1966–1990). LDCs include all countries, except OECD and central planned economies (CIS) and other countries in Eastern Europe. This period permits a comprehensive view of the impact of the energy crisis and the changes in economic growth patterns, correlated with changes in trends of production and consumption of energy and metals in both country blocs. This complex relationship was evaluated by a factor model of consumption and production variables using the aluminum, copper, lead, and zinc industries. The following variables are used in the factor model: export dependence, geographic concentration of mining production, geographic concentration of refined demand, geographic concentration of refined production, import dependence, refined demand growth, stability of demand, income elasticity of refined demand, price stability, intensity of use, and intensity of energy. The model for all commodities shows that the factor scores projections for LDCs and OECD blocs depicted a clearly divergent trend after the two oil shocks (1973–1979), when the intensity of energy variable presents high loading in the factor. The results are in substantial agreement with findings that the demand for energy, as well as for metals, is growing more rapidly in LDCs than OECD.     

Managing Technological and Financial Uncertainty: A Decision Science Approach for Strategic Drilling Decisions

This paper presents a framework to improve the quality of investment decisions in petroleum. The model presented enables the decision-maker to explicitly consider two major objectives when evaluating new petroleum opportunities—financial and technological gain. We utilize MultiAttribute Utility Theory (MAUT) to consider simultaneously the technological challenges of petroleum exploration into the capital budgeting process of an exploration and production firm. The MAUT methodology presented in this work demonstrates that in some mature areas the advantages to exploration are restricted further only to financial gain, based upon the present economic potential of the basin. On the other hand, other seemingly less attractive areas, such as deep horizons in deep-water basins, may represent attractive targets for new exploration as a result of the interaction of financial gain and technological advancement. This advantage reflects the technological gain as a key factor for future operations for oil discoveries in areas with big geological potential. The model presented in this work enables the decision-maker to consider explicitly the risk and rewards associated with both financial and technological payoffs, the decision-maker's tolerance for those types of risks, and the relative importance of each of those objectives in the context of ongoing petroleum exploration decisions.     

Analysis of Environmental Bonding System for Oil and Gas Projects

This paper is concerned with potential financial impacts of different bonding instruments on oil and gas projects. An algorithm was prepared in order to assist decision makers, both regulators and industry, evaluate potential Net Present Value (NPV) impacts of financial instruments used to satisfy bonding requirements. Instrument option is the main variable for the proposed model. The user will be able to select between four instruments (Letters of Credit, Prepaid Collateral Closure Accounts, Leasing Specific Closure Accounts, and Ex-post Insurance Policies). This study includes simulations for three producing fields of different economically recoverable reserves (9 MMbbl, 53 MMbbl, and 148 MMbbl⁵), where four financial instruments, in addition to a no instrument scenario, are tested under a proposed bonding regime. Sensitivity analysis of NPV and Government Take (GT) value indicate ex-post insurance policies and letters of credit cause fewer impacts yielding significantly better payoffs. Preliminary simulations also confirm that small projects, around 9 MMbbl, can be severely affected when collateral account instruments are used.