Abstract
Crude oil and gold are commodities traded in US Dollars, while gold has shown resilience and stability over the years, crude oil keeps fluctuating in price level. Oil price frequent changes have impacted the measurement of economic variables in dollar values and since the oil price is one of the most vital assumptions in economic forecasting, realistic determination of expected returns from petroleum investment has been a herculean task.
Most research articles on the above subject focused on the relationship between the price behaviour of crude oil and gold. There exist very few research articles that attempt to evaluate petroleum assets and investments in other currencies other than the U.S. dollar, this is not surprising since crude oil is traded globally in dollars. The value of the dollar has changed significantly over the years due to several factors that influence its value. The appreciation or depreciation of the U.S. dollar is influenced primarily by the monetary policies of the U.S., trade balances, inflation rates, investor confidence, political stability and reserve currency status. All these factors have a direct impact on the price of crude oil, since the commodity is traded in dollars.
My research attempts to evaluate the stability of gold over dollar-based currency. The use of petrogold has been promoted as a way of reducing dependence on the US dollar. However, the use of gold as a form of payment can be problematic because it is not easily divisible or transferable and can be subject to significant price volatility.
On this premise, we took an analytical approach to examine the profitability of a particular oil and gas investment in the Niger Delta given the capex and opex history of the asset as well as its revenue history derived from production. Using the corresponding historical prices of crude oil and gold, while considering crucial economic factors and policies that have shaped the modus operandi of the oil and gas industry over the years, we evaluated the performance of the asset under both Petrodollar and Petrogold pricing structure by several established economic yardsticks such as Net Present value (NPV), Unit Technical Cost (UTC), IRR, PI and ARR.
