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Optimization of Exploration and Production Sharing Agreements Using the Maxi-Min and Nash Solutions

Author

Listed:
  • Saad Balhasan

    (Chemical and Petroleum Engineering Department, American University of Ras Al Khaimah, Ras Al Khaimah P.O. Box 10021, United Arab Emirates)

  • Mohammed Alnahhal

    (Mechanical and Industrial Engineering Department, American University of Ras Al Khaimah, Ras Al Khaimah P.O. Box 10021, United Arab Emirates)

  • Shahrul Shawan

    (Chemical and Petroleum Engineering Department, American University of Ras Al Khaimah, Ras Al Khaimah P.O. Box 10021, United Arab Emirates)

  • Bashir Salah

    (Department of Industrial Engineering, College of Engineering, King Saud University, P.O. Box 800, Riyadh 11421, Saudi Arabia)

  • Waqas Saleem

    (Department of Mechanical and Manufacturing Engineering, Institute of Technology, F91 YW50 Sligo, Ireland)

  • Mosab I. Tabash

    (College of Business, Al Ain University, Al Ain P.O. Box 64141, United Arab Emirates)

Abstract

Cooperation between supply chain partners in the oil industry is essential, especially when oil prices suffer from fluctuations that affect the profitability of each party. An essential task in oil field development projects is to create an optimum agreement between the national oil company and the international oil company to guarantee agreement optimization. In this paper, the national oil company is the first party (FP) and the international oil company is the second party (SP). The paper’s purpose is to investigate the use of game theory to obtain the best agreement between the FP and SP in order to enhance the cooperation and reduce conflict. In this paper, Nash and Maxi-min solutions have been applied for the first time in a special type of petroleum agreement, called exploration and production sharing agreements (EPSA). This is conducted for a case study in Libya. The study considers nine negotiation factors (issues) in the EPSA, which are the share percent, the four “A” factors, and the four “B” factors, which are usually affected by the fluctuations of oil prices; and the study investigates their effect on the total payoff function, the net present value (NPV), and internal rate of return (IRR) for both parties. The Maxi-min solution has shown an improvement in the NPV and IRR of the SP, where NPV increased from USD 148 million to USD 195 million, and IRR from 15.65% to 17.01%. The Nash solution has shown a little more improvement than the Maxi-min solution in the NPV and IRR for the SP, where the NPV and IRR have increased from USD 148 million to USD 222 million and from 15.65% to 17.94%, respectively.

Suggested Citation

  • Saad Balhasan & Mohammed Alnahhal & Shahrul Shawan & Bashir Salah & Waqas Saleem & Mosab I. Tabash, 2022. "Optimization of Exploration and Production Sharing Agreements Using the Maxi-Min and Nash Solutions," Energies, MDPI, vol. 15(23), pages 1-19, November.
    • Handle: RePEc:gam:jeners:v:15:y:2022:i:23:p:8970-:d:985812
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    References listed on IDEAS

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