The efficient frontier of portfolios is an important tool for management because decision-makers can see how much return can be achieved using the total assets of the corporation and at the same time the level of risk. But, in order to create the efficient frontier, each project need to be analyzed previously – capital investment, production profile, capital cost etc. At the level of projects usually there are many real options available for management over the life of the project – drill additional wells, develop a satellite oil & gas field, oil production, make farm-out etc. When properly used, these real options have value and are an important tool for reducing the risk of NPV.

Then, a more realistic efficient frontier should consider the value of these real options, but in the practice of oil and gas business this does not always occur. In this paper, the study of the impact of some real options on the efficient frontier of portfolios intends to use an integrated methodology including real options, portfolio theory and Monte Carlo simulation. Three deep-water oil projects are combined in a portfolio, where the decisor has an option to sell the project if the payback period is not accomplished.

For the case of hypothetical situation, preliminary results indicated when there is availability of real options and management that can use them optimally, there are two main consequences: 1) the distribution of NPV is moved to the right and the efficient frontier is displaced towards more return and risk is reduced; 2) This way of thinking is important in order to a more effective policy for managing those variables that generate systematic risks (price, geology, etc). This model gives a better view of the true value of managerial flexibilities in the context not only of projects, but on the portfolio that is much more realistic.

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