Risk, uncertainty and investment decision-making in the upstream oil and gas industry

• Main Author: Macmillan, Fiona
• Published: University of Aberdeen 2000
• Subjects: 338.4
• Online Access: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.635960

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.