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52 oil industry investment appraisal literature (for example, Bailey et al., in press;
Simpson et al., 2000 and 1999; Lamb et al., 1999; Galli et al., 1999; Ball and Savage,
1999; Schuyler, 1997; Murtha, 1997; Smith and McCardle, 1997; Otis and
Schneiderman, 1997; Nangea and Hunt, 1997; Newendorp, 1996).
There have been two recent studies into current practice in investment appraisal
across the oil industry (Schuyler, 1997; Fletcher and Dromgoole, 1996) and both have
sampling limitations. Schuyler’s study drew only on the observations from participants on a decision analysis course and so some formal bias to formal decision
analysis practices must be assumed and Fletcher and Dromgoole only included subsurface employees in their cross-company survey. Hence, the results from both pieces
of research can only be regarded as indicative rather than conclusive. Both studies
tend to suggest that decision analysis is receiving increasing attention in the industry
and that the techniques are widespread in exploration investment decision-making but
have yet to be applied to production investment decisions (the differences in these
types of investment decision will be discussed in Chapter 5). The most useful indication of current practice in investment appraisal comes from individual
companies publishing details of their approach to investment appraisal in the oil
industry literature. Unfortunately there are few such reports and those that there are
usually tend to describe how decision analysis has been used in specific cases. This in
itself is indicative of how organisations use the techniques, a point that receives
further attention in Chapter 6, but, moreover, make it impossible to use such accounts
to describe company-wide practice. There are a few exceptions. For example, Otis
and Schneidermann (1997) describe the decision analysis approach used in Chevron
and Nangea and Hunt (1997) outline that used in Mobil prior to their merger with
Exxon. These and the other similar publications are reviewed in Chapters 5 and 6.
Clearly though, these company accounts, by their nature, are not indicative of industry
This section has shown why, given the recent changes in the operating environment of
the industry that it provides such a useful example in which to study investment
decision-making. The effect of these changes on investment decision-making in the
industry has been examined using the results from recent studies of current practice.
This has highlighted the growing interest in decision analysis in the industry and
53 identified the need for an empirical study to investigate investment appraisal decisionmaking in the oil and gas industry.
This chapter has used the oil industry literature to present a brief description of the
industry. The main challenges facing the industry in the 21 st century were identified.
The effects of these global changes on the U.K. industry were examined. This
highlighted the growing complexity of the business environment of those companies
operating in the upstream oil and gas industry...
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