Decommissioning of petroleum installations on the Norwegian continental shelf : a real options approach
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- Master Thesis 
Many fields on the Norwegian continental shelf (NCS) are maturing, and there are consequently a great number of petroleum installations that will be decommissioned in the near future. Decommissioning entails the full or fractional removal of an installation, and the process normally involves high costs. Having many of the largest extraction facilities in the world, the NCS represents the greatest share of removal costs globally. This thesis models project value and optimal timing of abandonment for a mature field on the NCS. The field produces both crude oil and natural gas and has an exponentially declining production. The analyses are conducted using a net present value and a real options approach. The real options approach is based on a contingent claims analysis, and includes the modeling of an abandonment option through a binominal lattice. Prices of crude oil and natural gas are modeled stochastically. Both models incorporate scenarios reflecting recent decommissioning market trends. Project data has been received from Statoil. The data is fictive, but based on a real case. The ultimate purpose is to evaluate the potential value of implementing a real options model for decommissioning analyses at Statoil. For our project, we find that the Net Present Value Model and the Real Option Model generally yield the same optimal timing of abandonment, but differ in project valuation. We conclude that the potential value of implementing a real options analysis depends on field characteristics and the purpose of the analysis. In general, the abandonment option is worth more for a field with a low decline in production compared to a rapid decline in production.