Quote from: RE on Jul 12, 2024, 11:48 AM

Quote from: TDoS on Jul 12, 2024, 07:58 AMThe international actors are completely different. Walk into the room with some energy minister or another and begin laying out costs, timing and particulars, and when you discuss the 15% iRR that can be achieved, you get told to go back to the drawing board and find 25-30% iRR projects to fund. Think of them as being loan sharks compared to how the domestic E&Ps do it.

The problem of course is that you project your IRR  at what you THINK the oil will sell at when the well starts producing.

What an interesting understanding of stochastic modeling you have. Would you care to volunteer your suggestion of the best futures hedging profile you would use across the life of the resource development project at the national level?

In my stochastic modeling, the tornado plot clearly demonstrates that price isn't even in the top 5 variables in terms of effect on the IRR profile through time. How else can you decide the best TIME to stop the project to maximize the overall result?

The IRR outcome is a probability density function at the annual level, based on all the other underlying probabilities as they play off against each other. More hedging, less hedging, future tax expectations, import/export considerations and refinery locations and costs in the GOM, long term contracts or short, geopolitical risk of a particular or general nature, initial investment all up front or development of multiple projects involved in stages, etc etc. Financing if it is included, etc etc. Some customers will take lower IRRs along with less hedging costs, different expections of ranges in exchange rates among currencies, etc etc.

Just run of the mill stochastic modeling, state of the art and no different than companies do for similar projects.

Like I said...oil price isn't even in the top 5 in terms of the uncertainty involved.

Quote from: REIf you say you think it will sell for $80 but when the well comes online it's at $60, your revenue is 25% less than projected.

Depends on your hedging profile. Yours in this example appears to be none. How...quaint.

Quote from: REObviously you have to convince the energy minister you are right and the IEA is wrong.

You are kidding, right? Name the geologic expertise and its caliber available to the IEA.

Quote from: REThis makes it a risky investment.

Is that the conclusion energy ministers reach after seing your deterministic calculations? How do you answer if they say "and what might the IRR range and discounted return on initial investment be if we hedge at a price 10% higher than last run for the first 3 years from the starting point of the first capital expenditure tranche"?

Quote from: REThe banks that ponied up money before the price dropped down to $30-50 between 2015-2021 took a serious bath since it had been selling at $90-100 in 2014.
So what price would you have penciled in right now (hypothetically) when you make your pitch to the Argentinians?
RE

Oh goodness. How would any of us internet yahoos ever be able to answer such a difficult question? A deterministic price path instead of a probabilistic one with correlations for rates of change through time to back out a range of IRRs? The complexity if just mind blowing for us internet yahoos.