Friday, 21 June 2019

Theory of the Efficient Frontier in Mexican Fields

First, I have centralized my analysis in the real options of the company that I am
analysing. In this section, I have described the general characteristics of each of the blocks
that this company has won in the bidding process (which are 5 of the 111 offered by the
Mexican government). These characteristics are such as the amount of reserves in each
one of the blocks in addition to the investment that the company plans to make, which
adds almost 114 million dollars so far.

After that, in my work I have also made an estimate of reserves and production through
the Monte Carlo simulation, in order to try to cover all the possible scenarios in which
the company could be found.

With this I have found some interesting data, especially in the estimation of reserves per
block, since the data reported by the National Hydrocarbons Commission is somewhat
overvalued, even up to 35% and also, I have noticed how in some blocks the volume
represents a critical factor for the development of these projects.

For now, what follows in the development of my work is the decision-making analysis
and it is right here where the analysis comes with specialized software.

With the results of the Monte Carlo simulation plus the fiscal regime in Mexico, I could begin
to point out which of these fields are more profitable and which are at risk of
being developed.

What I hope is that both with the real data and those thrown by the simulation, I can cover
as many scenarios and in this way make a dynamic analysis of the projects. That is,
which ones can adapt to a change in oil prices? Which ones can be submitted to
a change in the Mexican tax regime? At what time in the development of the
projects will it be necessary to abandon or boost the investment?

All this signalled in a graph of expected return against risk, the graph of the efficient
frontier theory.