in press simpson et al 2000 and 1999 lamb et al 1999

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Unformatted text preview: creasing attention in the 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 practice. 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. 3.5 CONCLUSION 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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