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

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  • Paul G. Bradley

Abstract

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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    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?," CERDI Working papers halshs-01146279, HAL.
    3. Laporte, Bertrand & de Quatrebarbes, Céline, 2015. "What do we know about the sharing of mineral resource rent in Africa?," Resources Policy, Elsevier, vol. 46(P2), pages 239-249.
    4. Tatiana Ponomarenko & Eugene Marin & Sergey Galevskiy, 2022. "Economic Evaluation of Oil and Gas Projects: Justification of Engineering Solutions in the Implementation of Field Development Projects," Energies, MDPI, vol. 15(9), pages 1-22, April.
    5. Regnier, Eva, 2007. "Oil and energy price volatility," Energy Economics, Elsevier, vol. 29(3), pages 405-427, May.
    6. 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.
    7. Bertrand Laporte & Celine de Quatrebarbes & Yannick Bouterige, 2022. "Tax design and rent sharing in mining sector: Evidence from African gold‐producing countries," Journal of International Development, John Wiley & Sons, Ltd., vol. 34(6), pages 1176-1196, August.
    8. 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.
    9. Berg, Magnus & Bøhren, Øyvind & Vassnes, Erik, 2018. "Modeling the response to exogenous shocks: The capital uplift rate in petroleum taxation," Energy Economics, Elsevier, vol. 69(C), pages 442-455.
    10. 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.
    11. Diderik Lund, 2009. "Rent Taxation for Nonrenewable Resources," Annual Review of Resource Economics, Annual Reviews, vol. 1(1), pages 287-307, September.
    12. 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.
    13. Lund, Diderik, 2009. "Marginal versus Average Beta of Equity under Corporate Taxation," Memorandum 12/2009, Oslo University, Department of Economics.
    14. 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.
    15. 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.
    16. Katia Rocha & Marco Antonio Guimarães Dias & José Paulo Teixeira, 2015. "The Timing of Development and the Optimal Production Scale: a Real Option Approach to Oilfield E&P," Discussion Papers 0126, Instituto de Pesquisa Econômica Aplicada - IPEA.

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    JEL classification:

    • F0 - International Economics - - General

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