Modeling Economic Planning for Exhaustible Natural Resources

Abstract

Petroleum economics is a key component of any field development plan (FDP) for crude oil and natural gas fields having finite life. This paper presents an analytical equation to model the relationship between initial speculative fund(s) and investment cost(s) in a project with finite life. We define a utility function for three categories of risk. The convolution of
the utility function and decline income is our objective function to be maximized subject to the rate of increase of capital. The results show that the return on investments will have the characteristic exponential decline.