Improving Decision-Making Process in Oil and Gas Development by a Context-Based Capital Value Process

Abstract

This paper demonstrates the application of a combination of action research-based soft system methodologies (SSM) and system dynamics (SD) to improve the decision-making process for oilfield development in state-owned enterprises (SOEs). The long dynamic investment phases often result in the delay of long-term oil and gas development projects, leading to loss of early production opportunities and increased capital investment. The existing decision-making process may not adequately value the initiative of an oilfield development, which results in uncertainty and leads to the rejection of investment decisions. Hence, it was assessed whether the decision-making process was differentiated based on the criteria and complexity of the proposed development project as compared to the existing project. A new context-based and scalable stage-gate model was developed for the oil and gas industry based on the stage-gate theory of new product development. The results indicate that the number of review cycles in the decision-making process reduced significantly based on the project’s complexity, ensuring the allocation of essential and scarce resources to the project, and reducing the total time for completion. In contrast, some bottlenecks still exist at the middle and higher levels of the decision-making process. A significant implication of this finding is that management decision-making will be better off if they consider delegating authorities for decision-making at every stage.