Fariyibi, Festus Lekan (2006-08). Application of price uncertainty quantification models and their impacts on project evaluations. Master's Thesis. Thesis uri icon


  • This study presents an analysis of several recently published methods for quantifying the
    uncertainty in economic evaluations due to uncertainty in future oil prices. Conventional
    price forecasting methods used in the industry typically underestimate the range of
    uncertainty in oil and gas price forecasts. These forecasts traditionally consider
    pessimistic, most-likely, and optimistic cases in an attempt to quantify economic
    The recently developed alternative methods have their unique strengths as well as
    weaknesses that may affect their applicability in particular situations. While stochastic
    methods can improve the assessment of price uncertainty they can also be tedious to
    implement. The inverted hockey stick method is found to be an easily applied alternative
    to the stochastic methods. However, the primary basis for validating this method has
    been found to be unreliable. In this study, a consistent and reliable validation of
    uncertainty estimates predicted by the inverted hockey stick method is presented.
    Verifying the reliability of this model will ensure reliable quantification of economic
    Although we cannot eliminate uncertainty from investment evaluations, we can
    better quantify the uncertainty by accurately predicting the volatility in future oil and gas
    prices. Reliably quantifying economic uncertainty will enable operators to make better
    decisions and allocate their capital with increased efficiency.

ETD Chair

publication date

  • August 2006