студент с 01.01.2015 по 01.01.2019
ПАО "Ингосстрах" (Управление стратегических проектов, Администратор проектов)
сотрудник с 01.01.2018 по 01.01.2019
Москва, г. Москва и Московская область, Россия
с 01.01.2006 по 01.01.2019
Россия
Москва, г. Москва и Московская область, Россия
УДК 65 Управление предприятиями. Организация производства, торговли и транспорта
ГРНТИ 06.73 Финансовая наука. Денежные и налоговые теории. Кредитно-финансовые институты
ГРНТИ 82.33 Стратегический менеджмент. Стратегическое планирование
ОКСО 38.04.02 Менеджмент
ББК 6526 Финансы. Денежное обращение
ТБК 7831 Стратегический менеджмент
ТБК 7834 Финансовый менеджмент
ТБК 7836 Управление проектами
BISAC BUS027020 Finance / Financial Risk Management
BISAC BUS101000 Project Management
В данной работе исследуются виды управленческих решений инвестиционных проектов нефтегазовой отрасли на основе метода кейс-стади, разные варианты которых связаны с ходом реализации проекта и могут быть учтены в реальных опционах. В результате станет возможным идентифицировать реальные опционы на ранних стадиях планирования инвестиционного проекта и с их учётом определить эффективность этих проектов.
реальные опционы, управленческая гибкость, инвестиционные проекты, нефтегазовая отрасль, источники неопределенности
1. Introduction
Despite the optimistic forecasts with respect to the effectiveness of the real options analysis in the investment projects evaluation, the method has not received all the popularity it deserves among practitioners [19]. The main reason for that is high mathematical complexity of the models. However, the gap between the predicted and real project cash flows when using the real options method, could largely be the result of a mismatch between the way managers value options and the way they manage them [27]. This explains the skepticism about the tool, which practitioners consider giving an overly optimistic forecast when evaluating investment projects. The clarity of the strategic analysis of the life cycle of an investment project and the “option-like thinking” of decision makers are no less important than the objectivity of the financial model [21].
The real options analysis serves to include managerial flexibility into project evaluation, which in theory gives a more objective characteristics of the project than the traditional discounted cash flows approach (hereinafter, DCF-analysis). However, in reality, a high level of uncertainty at the pre-investment stage significantly complicates the process of analyzing the project lifecycle in order to identify real options that could arise in the future. In addition, projects in the oil and gas industry are multi-stage and imply the presence of complex options, which also reduces the attractiveness of the method under consideration compared to the simpler DCF analysis. Thus, the lack of a formulated methodology for identifying real options in the investment projects in the oil and gas industry entails the ignorance of the real options analysis, which in turn leads to a possible rejection of potentially profitable projects.
The purpose of this study is to develop a template for real options identification in the investment projects of the oil and gas industry. The number of specific goals to be obtained center on:
- defining of the features of the real options classification in projects of the oil and gas industry;
- specifying the limits of applicability of the existing methods for assessing the real options in the oil and gas construction projects;
- elaborating the approach to identify real options in investment projects of the oil and gas sector;
- outlining the advantages and limitations of the proposed template.
2. Theoretical background
Real option is the right but not an obligation to take some action in the future [15]. Real options method allows to consider different project development scenarios which arise from the manager’s decision. Investment decisions are rarely taken to be implemented exactly as being scheduled at the pre-investment stage. The possibility to change input parameters (at least, time) or to abandon exists most often. If exercising the real option, the investment process occurs in stages, in several steps at each of which the manager has alternative choices. Every alternative solution is a real option which directly affects the value of the project under consideration. Moreover, the ability to respond to emerging during realization uncertainties requires keeping freedom or flexibility in decision-making. That kind of freedom is called managerial flexibility, which is defined as manager’s right to adjust future actions in response to changes in market conditions, competitors’ operations or the previous phases outputs [8]. The sources of uncertainties could be represented by both internal and external factors, such as market dynamics, political instability, organizational environment, competitive struggle development etc. The ability to overcome risks associated with uncertainties of the project is taken into account while valuing the real option.
In 1977 S. Myers [38] coined the term “growth option” and pioneered the concept that the ultimate value of non-financial or “real” assets depends on future firm’s investment by analogy with the value of an option. His work stimulated intense discussions in the early 1980s, and since that time theoretical studies are actively exploring the possibility of applying the theory of options in management. Later, the idea of evaluating investment opportunities expanded to the project scope.
Real options were originally used to evaluate oil and gas investment projects [9, 41], and then extended to a range of other industries. During the last years the academic interest to this topic increased significantly. Concerning the project management field of study, the real options analysis (hereinafter, ROA) is getting popularity in such spheres as: material supply [45, 48], disputes settlement [36], agreements on public-private partnership [2, 7, 13, 16, 22, 29], sustainable systems [23, 26, 28], information technologies [16, 42], mining [11, 35, 51]. The decision-maker is represented either by the project manager or the project champion.
The scholars note that the investment appraisal method should correspond to the characteristics and features of the project management environment [3], otherwise its utilization is not justified. The project management environment is known to be almost certainly variable and is associated with the high degree of uncertainty. Thus, all the uncertainties have to be included into the mathematical model of the evaluation method to be used – it is essential to get the most objective investment attractiveness estimation. The mechanism incorporated into the ROA model allows to minimize the risk of losing the value of the underlying asset (which is represented by a project in this case), thereby increasing its ultimate cost.
3. The Basis of the Real Options Evaluation
In the theory of finance, the option is the right but not the obligation to buy or sell the underlying asset at a predetermined price on a certain date [8]. So, two types of options are distinguished by the type of operation performed on an underlying asset: call option and put option. The fixed price on the option acquisition is called a premium. The closer the expiration date, the more is the value of an option. The exercise price is the price which one has to pay for an underlying asset. The intrinsic value of the call option (C) is the difference between the present value of the expected cash payment (S) and the price of the asset at the maturity date (K). The intrinsic value of the put option is respectively the difference between the cost of acquiring the underlying asset (K) and the exercise price.
Concerning investments in the real assets (real options), it is more complicated to determine the exercise price which is represented by the costs and resources needed for project realization. That fact discourages managers to implement the ROA. Moreover, these costs are almost always too difficult to assess, so the approximate estimations are often used [8]. The exercise price of the real option is made up of all the expenses required to create and place an asset which will be the source of future cash flows. For instance, the exercise price for the resource industry includes the license fee for the right to develop a field.
With the aim to provide evidence for the fact that using the ROA allows to evaluate the investment project more accurate, as compared with the traditional DCF-analysis, a hypothetical oil and gas project will be evaluated further.
The Company is considering investing ₽ 11,3 billions to install the offshore gas production platform. The second stage of the 1st phase is the LNG plant construction, which is a risky investment. Management thinks the odd of success are 50% and have decided to apply a medium-risk discount rate of 10% in their analysis. As it is shown on the (a) panel of the Picture 1, the estimated present value of expected cash flows under aforementioned conditions will be ₽ 0,1 billion. However, if including an option to abandon the decision to construct the plant, the estimated value of the project raises to ₽ 3,7 billions (see panel (b) of the Picture 1). Increasingly, if including a stage option into analysis, provided that the management could reject the investment decision to implement the 2nd phase of the project, the ultimate value will account for ₽ 9,9 billions. That example makes clear that the investment project in the oil and gas industry may be undervalued and possibly rejected if evaluated only using the tradition DCF-approach. Needless to say, that the technique applied here to perform the ROA is rather simplified for the sake of example. Obviously, various cumbersome mathematical models and special programs should be used in the real life, but that is beyond the scope of the present study.
4. The ROA advantages relative to the traditional capital budgeting techniques
Numerous studies acknowledge that the DCF-analysis is the most commonly used strategic investment assessment tool among the practitioners [4, 6, 18, 25, 39, 47]. In the traditional DCF-analysis the net present value (hereinafter, NPV) is the value of the project defined as the sum of future annual cash flows discounted back to the current moment [54].
The literature analysis confirms that aforementioned method is easy to use, widely taught and implemented, and has several advantages relative to the alternative investment analysis methods [30, 37, 46, 52] in that it is: (1) unambiguous and logical criterion for investment projects of any type; (2) provides independent of the risk preferences result (economically rational, accurate and quantitative indicator); (3) less vulnerable (relative to the other methods) to accounting formalities; (4) takes into account both the risk factor and the time value of money.
However, in the conditions of high uncertainty the characteristics of the investment projects differ from the DCF model assumptions, that limits applicability of the method and adversely affects the objectiveness of the result obtained [43]. The problem of the traditional approach limitations arises in many studies [1, 14, 42, 44, 49, 57] and could be listed in the following aspects:
- short-term planning horizon focus of the approach (deals mostly with the tactical investment decisions) to the detriment of the long-term strategic goals and long-term profits (the majority of the investment projects has strategic value and has relatively long payback period);
- difficulties in determining the proper discount rate, since the higher the level of the project uncertainty, the higher the risk premium, which in turn lowers the benefits on form of future cash flows;
- the possible quality benefits ignorance, which might arise in the majority of strategic projects;
- future possibilities ignorance, as well as considering the investment decisions as immediately executed, that completely eliminates the flexibility factor incorporating the opportunity to change the decision as the new information becomes available.
The proponents of the ROA state that aforementioned limitations of the DCF-analysis could be eliminated if utilizing the real options method when evaluating the investment project [31, 34, 44, 50, 53, 55]. Accounting for the possibility of changing the investment decision in response to any risk shifts the distribution of possible outcomes upwards [44]. Therefore, it could be concluded that that the ROA incorporates higher volatility than the DCF-analysis as the latter underestimated the meaning of uncertainty[1].
5. Factors, constraining applicability of the ROA to the oil and gas projects
Despite obvious real option presence in a project, its expiration could be limited by certain factors. Before investment project evaluation, it is worth determining the appropriateness of using the method of real options or the possibility to take the managerial decision which is embedded into a specific option.
According to Novozhilov, M. [40], there exist three groups of such limitations, which are: technical, institutional and economic. Technical constraints include, for instance, the security requirements, that restrict project integrity violation due to possibility of negative technological consequences. Institutional factors include legislation, environmental standards, social group interests, etc. Economic constraints are those factors that determine economic feasibility of the option in a project. The author distinguishes between two types of them: market characteristics and economic characteristics of an option per se. However, first type overlaps the influence of uncertainties, which will be considered in the next section. In this regard, economic constraints will be regarded only as an option characteristic (such as economic effect of its expiration).
6. Real option in the “Baltic LNG” project
The real case of the real option to expand will be considered further relying on the information provided by “Gazprom VNIIGAS”, with the aim to enlarge the applicability of the developed methodology on the second type of the oil and gas projects, namely, LNG-plant construction projects.
The essence of the project under consideration is following. The “Baltic LNG” is a two-phase project, the former of which comprises 10 million tons capacity plant construction, while the latter implies production capacity expansion to 15 million tons. Significantly, that the real option itself lies in the possibility to make the capacity reservation on the pre-investment phase of the project. Its expiration period lasts up to 5 years, since that is the period of plant construction. The two uncertainties influence the decision to expand or not (making the Final Investment Decision (hereinafter, FID) on phase 2 of the project), which are (1) crude oil price and (2) exchange rate and oil price relationship (see Picture 2). The key components of the 2nd uncertainty factor are revenue & taxes, and capital expenditures, which both depend on the exchange rate volatility.
Concerning the real option parameters, it should be mentioned, that the advantage of making the capacity reservation at the pre-investment phase accounts for 25,2 billion rubles (154,2 – 129=25,2) in case of making the FID on the phase 2. In case of rejecting the decision to expand the plant capacity, the NPV will be the sunk costs of reservation made, which accounts for -5,3 billion rubles. Obviously, the real option to expand worth considering, because the total NPV is 19,9 billion rubles (154,2 – 129 – 5,3 » 19,9).
7. Types of real options in the oil and gas projects
The analysis of the scientific publications for the last 20 years was conducted with the aim to define the most frequent real options that take place in the oil and gas projects. To identify the peculiarities of the real options in oil and gas field the key sources of uncertainties and managerial flexibility were revealed. The results of the analysis are presented in the Table 1.
Relying on the analysis it was concluded that the project’s uncertainties are the key factors which predetermine the presence and type of the managerial flexibility, which in turn allows to identify the type of real option. So, uncertainty is the very factor that determines the existence of a real option in the project. Therefore, the analysis of the uncertainties and their influence on the project results should be the first priority if analyzing the project on the real option presence. Moreover, the effect of the uncertainties identified should be significant, otherwise the corresponding decision could not be classified as the managerial flexibility.
Managerial flexibility existence requires either external or internal source of uncertainty. It worth mentioning that the uncertainties vary by degree of influence on the projects results. Therefore, it is necessary to range the uncertainties by the impact on the project outcome.
Adherent to the specified types of uncertainties (external and internal), the following subtypes were distinguished within these groups (Table 2). The corresponding types of the real option were established as well.
In order to provide the decision-maker with the assistant tool to range the uncertainties, all of the identified were assigned with the rating from 1 to 5 (1 – low, 2 – below the average, 3 – average, 4 – above the average, 5 – high). More detailed analysis of the factors and the assessment rationale is presented below.
- Oil / gas price (market factor)
The price of the resource extorted directly affects the project outcome. Most of the analyzed publications (see Table 1) consider this factor as the basis for valuing an option to defer, expand or a stage option.
8. An approach for real options identification in the investment projects of the oil and gas industry
Overall, we propose the following approach aiming to facilitate the process of real options identification in the investment projects of the oil and gas industry. Systematizing all the identified features of identifying real options, the following sequence of actions necessary for ROA implementation was established.
1. Preparatory phase:
- determining the type of a project;
- formulating and defining the project stages;
- composing a decision-tree model;
2. Key project uncertainties identification:
- identifying uncertainties with the help of proposed Table 2;
- determining the most significant by the influence on the project results uncertainties with the help of proposed Table 2;
- adjusting the recommended significance rate to a certain project, considering its peculiarities;
- ranking the uncertainties identified in terms of quantified significance rate;
- selecting the key uncertainties and determining the corresponding type of a real option with the help of proposed Table 2;
3. Limiting the applicability of the ROA factors determination:
- identifying the factors based on Novozhiliv’s [40] classification;
- taking the decision on taking into account / ignoring a real option when evaluating an investment project or adjusting input parameters.
9. Conclusions and recommendations
The following conclusions could be drawn based on the conducted analysis:
1) The literature analysis showed that the practical utilization of the ROA is currently complicated due to several reasons. Practitioners claim that it is explained by numerous assumptions and simplifications of the mathematical model, while the theorists argue that the key reason for that is irrationality of the former, especially, cognitive distortion and biases of practitioners towards the processes which give rise to real options. Therefore, the present study attempts to answer the call for more investigation of the factors that influence the presence of real options in the investment projects.
2) Based on the theoretical studies of practical nature it was found that uncertainty factors in projects predetermine the presence of managerial flexibility, which in turn predetermines the presence and the type of the real option. Hence, the uncertainty is the major factor to determine the presence of the real option, and it is necessary to analyze them foremost when using ROA for investment projects evaluation. It is also essential to take into account the diversity of the uncertainties and to range the importance of those by the impact level on the project results. Thus, among the multitude of uncertainties present, it is worthwhile to identify the critical ones, as they are the key uncertainties to signalize of the real option(s).
3) The developed and proposed in the 7th sector approach is an integrant of the whole investment project evaluation process and might serve as the facilitator for the ROA usage, providing the decision-maker with a step-by-step instruction for primary real options identification. However, the approach has several limitations. Firstly, the field of study was confined to the exploration & development type of oil & gas projects, hence, the proposed Table 1 might be applicable mainly to that very type of projects. In this regard, one of the promising areas for further research is the expansion of the analysis set to the other types of the oil & gas projects. Secondly, it might serve the purpose of the inquiry if the in-depth analysis of wider array of data will be performed with the aim to verify precisely the relationship of the certain uncertainties and the corresponding type of the real option. Moreover, complete resolution of the stated research problem of low practical ROA utilization, the approach for real options identification is insufficient, inasmuch as decision-makers need to be provided with the training on the its [ROA] mathematical apparatus.
[1] The “sense of uncertainty” refers to the possibility of changing investment decisions that occur during the stages of a project, when uncertainty diminishes or disappears completely.
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