Study on the Valuation Method for Overseas Oil and Gas Extraction Based on the Modified Trinomial Tree Option Pricing Model

Table 5

Distribution of uncertainty factors in Block Sudan X.

Uncertainty factor	Distribution of affected parameters
Resource reserves	Ln (Rpre)∼N(9, 0.42^2)
Global oil price^3	dLn Ps-price = 0.8(4-Ln Ps-price)dt + 0.02dzt, dzt∼(0, dt)
Resource depth	Idev/bbl∼N (16, 3.2^2)
Resource quality	iqua∼N (4, 0.78^2)
Utilization rate	ruti∼Tra (0.8, 0.85, 0.94, 1)
Production rate	rpro∼Tri (0.01, 0.02, 0.03)
Decline rate	Rdel∼Tri (0.15, 0.2, 0.22)
Discount rate^4	i∼0.01T(4) + 0.1

²There are three possibilities of whether to proceed to the next stage: Yes means immediate development, No means immediate abandonment, and Wait means waiting for opportunity. ³Ps-price is the sales price of crude oil, Ln Ps-price refers to the logarithm of crude oil price, and 4 is the mean value of the logarithm of Brent oil price during 1999-2019; 0.8 is the reversion speed of the mean value; the larger the value is, the faster the logarithm of price approaches the long-term mean value; 0.02 is the logarithm volatility obtained by calculating the logarithms of Brent oil price in recent 20 years; dz_t refers to the standard Brownian motion, dz_t∼ (0, dt). ⁴The design of discount rate distribution is based on the discount rate currently used by CNPC, data from Evaluation parameters of investment projects of CNPC (2019).