IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v149y2025ics0140988325005201.html
   My bibliography  Save this article

Uncertain time to completion in a sequential investment problem: A theoretical analysis and an empirical application

Author

Listed:
  • Abigaba, Micah Lucy
  • Bengtsson, Jens
  • Ketelaars, Martijn W.
  • Kort, Peter M.

Abstract

We develop a real options framework for a sequential oil project in which the oil company has to complete its development stage before it is able to start its production stage. Both the oil price and the duration of the development stage are uncertain. For each stage we determine the associated optimal price threshold that reflects an optimal investment timing. The goal of the article is to study the determination of these two thresholds. Because the oil price and the time to completion are uncertain, it is imperative to coordinate the thresholds in such a way that upon completion of the development stage it is sufficiently probable that the oil company can immediately start its production stage. Our numerical analysis is based on Uganda’s oil project in the Albertine Graben region. We show that changes in the characteristics of the oil price have a more pronounced effect on the development price threshold because it depends also on the production price threshold. Interestingly, we observe that it could be optimal for the oil company to start its initial development stage later in case of a shorter expected time to completion. This happens when it expects the oil price to grow relatively quickly.

Suggested Citation

  • Abigaba, Micah Lucy & Bengtsson, Jens & Ketelaars, Martijn W. & Kort, Peter M., 2025. "Uncertain time to completion in a sequential investment problem: A theoretical analysis and an empirical application," Energy Economics, Elsevier, vol. 149(C).
    • Handle: RePEc:eee:eneeco:v:149:y:2025:i:c:s0140988325005201
    DOI: 10.1016/j.eneco.2025.108693
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988325005201
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eneco.2025.108693?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:149:y:2025:i:c:s0140988325005201. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eneco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.