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Comparative Study of Discounted Cash Flow and Energy Return on Investment: Review of Oil and Gas Resource Economic Evaluation

https://doi.org/10.26794/2587-5671-2020-24-2-50-59

Abstract

The aim of the paper is to develop a methodology for evaluating oil and gas fields return on investments based on not only finance, but also environmental and social interrelations. The subject of the study is a comparison of methods for calculating return on investments on the example of China, Canada and Russia’s oil and gas companies. The authors used a comparative method of calculations, as well as a case study — a comparison of return on investments methods on the example of oil and gas enterprises. In the paper, the authors analyze the next traditional methods of economic assessment: net present value, differential rent, reserve and multiple costs. The authors suggest using a new assessment method that determines the energy return on investment (EROI). This method does not rely on traditional analysis of net present value (NPV), internal rate of return (IRR), and financial sensitivity. It comprehensively takes into account the costs of energy production, environmental protection and energy efficiency. Based on the results of the study, the authors conclude that the advantages of various methods of economic assessment should be integrated in order to avoid disadvantages and create a new dynamic integrated system of economic assessment. Oil and gas companies may use the results of the study to implement the energy return on investment methodology concerning oil and gas fields’ evaluation. A promising direction for further research may be to compare the energy return on investment at oil and gas enterprises in different countries as well as developing corporate reporting concerning energy return on investment improving efficiency.

About the Authors

J. Yan
China University of Petroleum (Beijing)
China

Yan Jun — PhD student, Institute of Economics and Management

Beijing



L. Feng
China University of Petroleum (Beijing)
China

Lianyong Feng — PhD, Prof., Institute of Economics and Management

Beijing



A. N. Steblyanskaya
Harbin Engineering University
China

Alina N. Steblyanskaya — PhD, Assoc. Prof., Institute of Economics and Management

Harbin



S. Fu
Harbin Engineering University
China

Shanna Fu — PhD, Lecturer, Institute of Economics and Management

Harbin



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Review

For citations:


Yan J., Feng L., Steblyanskaya A.N., Fu S. Comparative Study of Discounted Cash Flow and Energy Return on Investment: Review of Oil and Gas Resource Economic Evaluation. Finance: Theory and Practice. 2020;24(2):50-59. https://doi.org/10.26794/2587-5671-2020-24-2-50-59

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ISSN 2587-5671 (Print)
ISSN 2587-7089 (Online)