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On the Use of Modern Asset Pricing for Comparing Alternative Royalty Systems for Petroleum Development Projects


  • Paul G. Bradley


This paper is the second in a series that describes how Modern Asset Pricing (MAP) may be used for project evaluation in the upstream petroleum industry. It has two goals. First, it demonstrates how MAP can be applied to the general class of projects where the project manager does not have any future flexibility that must be analysed. Second, the usefulness of MAP in fiscal system analysis is illustrated by the evaluation of a series of oil-field development projects under a variety of fiscal regimes. In situations where different fiscal systems have the same effect on a discounted cash flow (DCF) basis, the value of afield to a developer may appear quite different when analysed using MAP. MAP takes into account the differing risk characteristics of the cash-flow streams of the developer and the government or resource owner, and provides us with an added dimension of information: comparisons of how different fiscal systems distribute risk among the parties involved in the project.

Suggested Citation

  • Paul G. Bradley, 1998. "On the Use of Modern Asset Pricing for Comparing Alternative Royalty Systems for Petroleum Development Projects," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 47-81.
  • Handle: RePEc:aen:journl:1998v19-01-a03

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    References listed on IDEAS

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    Cited by:

    1. Smith, James L., 2013. "Issues in extractive resource taxation: A review of research methods and models," Resources Policy, Elsevier, vol. 38(3), pages 320-331.
    2. Celine De Quatrebarbes & Bertrand Laporte, 2015. "What do we know about the mineral resource rent sharing in Africa?," Working Papers halshs-01146279, HAL.
    3. Nakhle, Carole, 2007. "Do high oil prices justify an increase in taxation in a mature oil province? The case of the UK continental shelf," Energy Policy, Elsevier, vol. 35(8), pages 4305-4318, August.
    4. Diderik Lund, 2009. "Rent Taxation for Nonrenewable Resources," Annual Review of Resource Economics, Annual Reviews, vol. 1(1), pages 287-307, September.
    5. Carole Nakhle, 2007. "Do High Oil Prices Justify an Increase in Taxation in a Mature Oil Province? The Case of the UK Continental Shelf," Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) 116, Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.
    6. Lund, Diderik, 2009. "Marginal versus Average Beta of Equity under Corporate Taxation," Memorandum 12/2009, Oslo University, Department of Economics.
    7. Regnier, Eva, 2007. "Oil and energy price volatility," Energy Economics, Elsevier, vol. 29(3), pages 405-427, May.
    8. Smith, James L., 2014. "A parsimonious model of tax avoidance and distortions in petroleum exploration and development," Energy Economics, Elsevier, vol. 43(C), pages 140-157.
    9. Diderik Lund, 2002. "Taxation, Uncertainty, and the Cost of Equity," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 9(4), pages 483-503, August.
    10. Samis, Michael & Davis, Graham A. & Laughton, David & Poulin, Richard, 2005. "Valuing uncertain asset cash flows when there are no options: A real options approach," Resources Policy, Elsevier, vol. 30(4), pages 285-298, December.
    11. Marco Antônio Guimarães Dias & Katia Maria Carlos Rocha, 2015. "Petroleum Concessions with Extendible Options: Investment Timing and Value Using Mean Reversion and Jump Processes for Oil Prices," Discussion Papers 0082, Instituto de Pesquisa Econômica Aplicada - IPEA.

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    JEL classification:

    • F0 - International Economics - - General


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