macmillan (1) - Risk Uncertainty and Investment...

Risk, Uncertainty and Investment Decision-
Making in the Upstream Oil and Gas Industry
Fiona Macmillan
MA Hons (University of Aberdeen)
October 2000
A thesis presented for the degree of Ph.D. at the
University of Aberdeen

DECLARATION
This thesis, and the research underpinning it, is entirely my own work. It has not been
submitted in any previous application for a degree. All quotations in the thesis have
been distinguished by quotation marks, and the sources of information specifically
acknowledged.
Signed:…………………………………………..
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ACKNOWLEDGEMENTS
Whilst this thesis is entirely my own work, many others have contributed to it and
shaped the end result in their own unique way and I would like to take this
opportunity to recognise them.
First, thanks must go to my sponsor, CSIRO Australia (Commonwealth Scientific and
Industrial Research Organisation), and supervisors for their enthusiasm, patience and
commitment, especially Professor Graeme Simpson, whose confidence in me and in
the value of my study never wavered even when I doubted it myself. Second, I would
like to acknowledge the respondents and the companies that they represented. For
their time, honesty and encouragement I am extremely grateful. Special thanks must
go to Steven McColl of Conoco, Jon Gluyas of Lasmo, Pat Mackintosh of DNV (Det
Norske Veritas) and Gillian Doyle of Wood Mackenzie for all their assistance. Last
and most importantly, I would like to thank my husband, Mike, my parents and my
friends - especially Gill, Vanessa and Natalie, for their love, support and unshakeable
belief in me and in all that I do. Without them, there would be no thesis.
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ABSTRACT
The research presented in this thesis is rooted within the existing decision theory and
oil industry literatures. It contributes to one of the current debates in these literatures
by providing evidence that in the operators in the U.K. upstream oil and gas industry
there is a link between the use of decision analysis in investment appraisal decision-
making by organisations and good business performance.
It is commonly acknowledged that decision analysis is not as widely used by
organisations as was predicted at its conception (for example, Schuyler, 1997). One
reason for this is that no study to date has shown that use of decision analysis
techniques and concepts can actually help individuals or organisations to fulfil their
objectives. Despite over four decades of research undertaken developing decision
analysis tools, understanding the behavioural and psychological aspects of decision-
making, and applying decision analysis in practice, no research has been able to show
conclusively what works and what does not (Clemen, 1999).
The current study begins to fill this gap by using qualitative methods to establish the
following. Firstly, the research identifies which decision analysis techniques are
applicable for investment decision-making in the oil industry, and thereby produces a
description of current capability. Secondly, the study ascertains which decision