Risk, Uncertainty and Investment DecisionMaking in the Upstream Oil and Gas Industry
Fiona Macmillan MA Hons (University of Aberdeen)
A thesis presented for the degree of Ph.D. at the University of Aberdeen
This thesis, and the research underpinning it, is entirely my own work. It has not been submitted in any previous application for a degree. All quotations in the thesis have been distinguished by quotation marks, and the sources of information specifically acknowledged.
ACKNOWLEDGEMENTS Whilst this thesis is entirely my own work, many others have contributed to it and shaped the end result in their own unique way and I would like to take this opportunity to recognise them.
First, thanks must go to my sponsor, CSIRO Australia (Commonwealth Scientific and Industrial Research Organisation), and supervisors for their enthusiasm, patience and commitment, especially Professor Graeme Simpson, whose confidence in me and in the value of my study never wavered even when I doubted it myself. Second, I would like to acknowledge the respondents and the companies that they represented. For their time, honesty and encouragement I am extremely grateful. Special thanks must go to Steven McColl of Conoco, Jon Gluyas of Lasmo, Pat Mackintosh of DNV (Det Norske Veritas) and Gillian Doyle of Wood Mackenzie for all their assistance. Last and most importantly, I would like to thank my husband, Mike, my parents and my friends - especially Gill, Vanessa and Natalie, for their love, support and unshakeable belief in me and in all that I do. Without them, there would be no thesis.
The research presented in this thesis is rooted within the existing decision theory and oil industry literatures. It contributes to one of the current debates in these literatures by providing evidence that in the operators in the U.K. upstream oil and gas industry there is a link between the use of decision analysis in investment appraisal decisionmaking by organisations and good business performance.
It is commonly acknowledged that decision analysis is not as widely used by organisations as was predicted at its conception (for example, Schuyler, 1997). One reason for this is that no study to date has shown that use of decision analysis techniques and concepts can actually help individuals or organisations to fulfil their objectives. Despite over four decades of research undertaken developing decision analysis tools, understanding the behavioural and psychological aspects of decisionmaking, and applying decision analysis in practice, no research has been able to show conclusively what works and what does not (Clemen, 1999).
The current study begins to fill this gap by using qualitative methods to establish the following. Firstly, the research identifies which decision analysis techniques are applicable for investment decision-making in the oil industry, and thereby produces a description of current capability. Secondly, the study ascertains which decision
analysis tools oil and gas companies actually choose to use for investment appraisal, and through this develops a model of current practice of capital investment decisionmaking. Lastly, using statistical analysis, it provides evidence that there is an
association between the use of decision analysis in investment decision-making by companies and good organisational performance in the upstream oil and gas industry. Such research not only contributes to the current theoretical debate in the oil industry and decision theory literatures but also provides valuable insights to practitioners.
CONTENTS PAGE Declaration Acknowledgements Abstract List of figures List of tables Chapter 1: Introduction i ii iii vii viii 1
1.1 Introduction 1.2 Background to the thesis 1.3 Research questions 1.4 Outline of thesis
2 2 4 8
Chapter 2: Literature Review
2.1 Introduction 2.2 Risk and...
Bibliography: 1980; Stonehill and Nathanson, 1968).
This type of study, however, has been slow to appear in the literature doubtless because of the threat they represent to the decision analysts (Clemen, 1999 pp23-24):
“Asking whether decision analysis works is risky
Very few other studies have attempted to value the usefulness to organisations of using decision analysis (Clemen, 1999)
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