A method is proposed for determining an appropriate rate of return (ROR) when evaluating exploration and appraisal ventures in different countries. A continuous relationship between ROR and risk is suggested as appropriate for the majority of projects. Overall risk is obtained from a model in which the factors considered to influence the perception of risk are weighted according to their propensity to reduce a venture’s net present value and then combined. The model is used to estimate the appropriate ROR for an Eastern European venture.

Keywords:
market risk, risk parameter, appropriate ror, risk management, project valuation, weighting, weighted average cost, exploration, risk premium, society of petroleum engineers
Subjects:
Asset and Portfolio Management, Risk Management and Decision-Making, Project economics/valuation
Copyright 1992, Society of Petroleum Engineers
You can access this article if you purchase or spend a download.