Summary
In the high-risk E&P industry, the profit of each stakeholder depends on
the strategies of all. The optimal choice for one player may not be optimal for
other players, who may opt to prevent it. These characteristics suggest using
game theory to model decision situations in the E&P industry. In a business
dominated by joint ventures and tight governmental regulation, an understanding
of the interests and influence of all stakeholders is particularly important.
Although the E&P industry is accustomed to developing complex economic
models to obtain insight into the commercial attractiveness of joint ventures,
the influence of other stakeholders is often ignored. Each stakeholder must
decide how much to invest, in which sequence to make decisions, whether to make
decisions before or after the other stakeholders, which decisions to make
before vs. after technological and organizational uncertainty is resolved,
whether to accept or block the designation of one stakeholder as dominant, and
whether to accept or block hub placement within one of multiple oil fields. A
joint development program of a portfolio of gas fields and its gas processing
and export facility has been analyzed using tools from game theory. The focus
is on which infrastructure to develop and when. Players? preferences are
functions of equity stakes and expected reserve sizes of the prospects. The
analysis provides insight into the preferred development options of the
individual players, how preferences change as uncertainty gets resolved, and
how much individual players are to gain or lose if certain investment decisions
are made. The analysis allows a player (1) to identify under what conditions
its objectives are aligned with fellow players, and (2) to quantify the maximum
amount it can pay to gain support from its fellow players.
Introduction
Decision analysis is often used to create insight for and support decision
making in the exploration and production (E&P) industry. Classical decision
analysis focuses on one decision-maker or a single organization facing an
uncertain environment. However, some decision situations involve several
players (individuals or organizations) in a competitive environment. Game
theory aims to illuminate situations in which decision-makers interact.
The theory assumes that partners or players in a relationship have different
interests, objectives, and influence. The optimal choice for any individual
player might not be optimal for its fellow players, who may opt to prevent it.
However, understanding the objectives and influencing opportunities of its
fellow players enables a player to sensibly judge whether to change the outcome
of the game or alternatively the player might realize that no positive outcome
is feasible because of the power of other players.
These concepts are especially relevant to the E&P industry, whose
increasing domination by joint ventures and tighter governmental regulation is
expected to increase conflict between business partners.
© 2009. Society of Petroleum Engineers
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History
- Original manuscript received:
27 2009
- Meeting paper published:
4 October 2009
- Revised manuscript received:
11 2009
- Manuscript approved:
23 2009
- Published online:
28 October 2009
- Version of record:
28 October 2009
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