Optimization of Capital Expenditures In Petroleum Investments

Abstract

JOHN M. CAMPBELL MEMBER A/MEAs the petroleum industry has embraced the concept of rate of return as an investment criterion, numerous papers on the subject have appeared in the literature. The purpose of this paper is to clarify the significance of these methods and extend their application.Because of space limitations, no attempt has been made to duplicate these previous efforts. Instead, the emphasis has been placed on proper utilization of the results. Discussed are: (I) the problem of multiple rates of return on acceleration projects; (2) effect of time on comparative results; (3) development of realistic mathematical model; and (4) formal consideration of probability in the economic evaluation. Several reasonable solutions to these problems are presented.