Dynamic Hybrid Modelling Framework for Resources Management in Exporting Under-Developed and Developing Nations

Abstract

Abstract Most reserves growth models have focused on mature fields in developed nations. Consequently, the direct application of such models to under-developed and developing nations with perceived maturing fields becomes challenging as the fundamental assumption in existing model formulations do not apply and are violated. The resultant resource management policies thus fail to meet the yearnings and aspirations of many under-developed and/or developing petroleum-dependent economies. This work bridges this gap using the formulation of a hybrid model that captures the peculiarity of under-developed and developing nations with attendant maturing field, towards their resources management. The modelling framework entails a hybrid of discovery-process, econometrics, and discounted cash flow approaches. However, for the purpose of this paper, policy application of the latter is the focus. Discounted Cash Flow (DCF) model framework adopted in this paper; is used to evaluate and investigate the impacts of volatility of oil price on oil and gas development economics using conventional, linear and logarithmic scales' fiscal policy schemes. Economic performance indicators such as Internal Rate of Return (IRR), Profitability Index (PI), and Take statistics are incorporated to evaluate investment performance. Sensitivity simulation approach is also incorporated to investigate its impact on decision variables. The overall aim is mitigating associated economic and technical risks in the highly risky and capital intensive oil and gas industry during low oil price regime. This paper recommends that resources utilization emphasis should be geared towards value addition by providing incentives that encourages more investment domestically, thereby opening up opportunities for its citizenry. Paradoxically, incentivizing and delaying gratification that encourages investments tend to yield approximate economic performance metrics as perceived regressive fiscal terms that would not encourage upstream E&P investments, ceteris paribus.