The Government of India has recently approved a new exploration licensing policy. The upstream public sector companies are to compete along with private sector companies but are to get the same fiscal and contract terms as are available to private companies. The public sector companies are also planning to acquire acreages and develop oil & gas fields within and outside India, in association with private and multinational oil companies. Therefore, the evaluation of technical and economic uncertainties in the field development and asset valuation in totality assume significance.

Investment decisions in oil field development are normally based on perceived ability to enhance asset economic value. Present evaluation practices are based on deterministic approach estimating most likely reserves and producing rates, development plans, capital investment needed and carrying out sensitivity analysis for important variables. This approach has short coming in that it does not consider the uncertainties in reserves, producing rate, capital investment, operating expenses and price realization.

This paper presents an integrated approach applied to reservoirs, at initial stage of development and at mature stage, using simulation modeling considering technical uncertainty about hydrocarbon volumes estimated and production profiles: and economic uncertainty about capital investment, operating expenses, prices, inflation and exchange rates, to determine the economic volatility and the option value.

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