Application of Economic Decision Tools in Petroleum Investment

Abstract

Oil reserve developments require making some inevitable decisions. Due to the huge cost of investment in petroleum, these decisions may lead to huge losses or profits. The desire of every petroleum industry investor is to make profit. In a situation where there are many oil reserve alternatives for development, maximizing profit is another key factor in decision making as every investor desires to develop the most productive oil reserves. Economic decision tools provide guidelines for managers and investors in the petroleum industry in ranking oil reserve alternatives. This paper provides guidelines in ranking and selecting profitable oil reserves based on total profits, unit cost of oil reserve development, net present value and pay-back period.