The difficulty of valuing long life production is commonly experienced in oil + gas economic evaluations. High project discount rates are observed to reduce the Net Present Value of late life-of-field production to a low level, thus lending doubts as to the credibility of the valuation tools employed in practice. This paper attempts to identify the fundamentals which control the value of long life production. In so doing it is, inter alia, necessary to consider issues of corporate finance and to employ concepts derived from modern asset pricing methodologies. Attitudes to Corporate Survival and the availability of reinvestment opportunities are cornerstones in the analysis. A by-product of this process are some important observations on the volatility of oil prices.
The complexity of ‘rear problems and the availability of suitable data upon which to base the valuations are seen as difficulties to be overcome in practical applications.