Managing Oil and Gas Companies - Capital budgeting methods in the upstream petroleum industry: simple adjustments for complex problems

When an oil company analyzes an upstream investment project in a country with high taxation levels and where debt service charges are deductible, complex problems can arise with regard to a company-wide standard for assessing such investment decisions.In the case presented in this article-based on a study conducted for TotalFinaElf SA-the loan amount contracted to finance the investment can be substantially higher than the figure corresponding to the target debt ratio that the company sets for similar projects (theoretically in the same risk class) and has to respect on a company-wide basis.In this case, the loan amount contracted to finance this type of project cannot be evaluated by con...

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