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Lucija Muehlenbachs by i7Xox0

VIEWS: 4 PAGES: 16

									 Avoiding
 Environmental
 Remediation Through
 “Temporary” Closure




Lucija Muehlenbachs
University of Maryland
Alberta:
  350,273 oil and gas wells
  42,000 are inactive

Texas:
  354,616 oil and gas wells
  114,259 of which are “shut-in,
  depleted and are not expected
  to produce another barrel of oil”
        Environmental Impacts
Gas migration

Drinking water contamination

Naturally Occurring Radioactive Material
Real Options in Natural Resources

 Brennan and Schwartz (1985)
 Paddock, Siegel and Smith (1988)
 Dixit and Pindyck (1994)
 Slade (2001)
 Mason (2001)
 Moll (2001)
 Moel and Tufano (2002)
V ( P )  V ( P )  Eo
  m   o     o    o




V ( P )  V ( P )  Em
  o   m     m    m




V ( P )   Ea
 m    a
V ( P )  V ( P )  Eo
  m    o        o   o


   VP ( P )  VP ( P )
     m   o      o   o


V ( P )  V ( P )  Em
 o   m      m     m


   VP ( P )  VP ( P )
     o   m        m   m


V ( P )   Ea
 m     a


      V (P )  0
       P
        m   a
                       01                  02
V  D1 ( PQ)
 m
                              D2 ( PQ)           M
                                                        r




     Option to Reactivate

                                 1       1  2 2r 
                             01  2   2    2   1
                                 2      
                                             2    

               1       1  2 2r 
           02  2   2    2   0
               2      
                           2    
                       01                 02
V  D1 ( PQ)
 m
                              D2 ( PQ)           M
                                                       r



                              Option to Abandon
     Option to Reactivate
                       01                 02
V  D1 ( PQ)
 m
                              D2 ( PQ)           M
                                                         r

                                                  Maintenance Cost


                              Option to Abandon
     Option to Reactivate
V a  A2 PQ12  kPQ             C
                    (  k  r )    (r  k )




              V  A2 ( PQ)
                         o                     12
                                                      kPQ             C
                                                          (r  k   )    r




                      Value of Abandoning
                        Or Mothballing




                                                                      12 0
     a 01          a 02
D1 ( P )      D2 ( P )     M         Ea
                                 r
     s 01              s 02
D1 ( P )        D2 ( P )       M             Ea
                                         r

     M              Ea
               r
         01              02
D1 (0)          D2 (0)         M         Ea
                                     r
  dt  D

D  operating, mothballed, abandoned




                         Q                          Q

                         P  q  f ( y Q)dy - C(Q)P  q  f ( y Q)dy   if i  o
                         0                          0
                        
E  ( P, Q, d P, Q)   M                                            if i  m
                        0                                              if i  a
                        
                        
                        
V ( P, Q)  max E ( )  V ( P' , Q' )
               dD ( s )




V      V ( P' , Q' ) f (q' Q) ( P'| P)dq' dP'
       P' Q'

								
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