1.2. Risk estimation

Inflation is growth of general price level and costs accompanied loss of purchasing capacity of state monetary unit. Basic, world, forecast and settlement price can be used for estimation of incomes and expenses.

Basic prices are developed in the market for certain moment of time. The basic price for oil production is considered as constant for calculated period and can be used, as a rule, at the stage of producing test estimation, works with period changes from 3 till 7 years.

Calculation of economic efficiency in current (forecast) and calculated prices is obligatory at economic estimation of the technological scheme of oil development. Current (forecast) prices reflect change of the price in time and are defined by means of annual (current) factor of inflation. Calculation of efficiency parameters of the project is recommended to be made in the current prices, i.e. with inflationary indexation. It is necessary to consider influence of inflation on values of income and expenses to correctly estimate project results and also to provide comparability of projects parameters in various conditions.

For this purpose cash flows of expenses and incomes should be calculated in current (forecast) prices but integrated parameters (NPV, IRR, PI) should be calculated with settlement prices, i.e. the prices are cleared from general inflation.

The settlement prices by means of discounting factor are led to some moment of time, i.e. correspond to the prices at this moment. It is done to exclude general change of price scale but to keep change in structure of the prices (because of inflation) at calculation of integrated parameters. Calculation of efficiency integrated parameters (NPV, IRR, IP, period of pay back) is carried out on the basis of the settlement prices to exclude influence of inflationary change of the prices to economic parameters.

The economic risk is defined as “danger, opportunity of the loss or damage”, i.e. loss of part of the resources by a company, short-receiving of incomes or occurrence of additional expenses as a result of realization of the certain industrial or financial activity.

The investment project assumes planning three basic cash flows in time: cash flow of investment, cash flow of current (operational) payments and cash flow of incomes. Neither a cash flow of current payments, nor a cash flow of incomes cannot be planned quite precisely as there is not full definiteness concerning future condition of the market. The price and volumes of sold production, the price for raw material and other monetary-cost parameters of environment can strongly be differed with prospective scheduled values which are estimated from positions of today.

Always there is an opportunity of that the project recognized solvent, will be de-facto unprofitable as the values of parameters reached during investment process have deviated from scheduled, or any factors have not been considered at all. The investor will never have a universal estimation of risk as the number of environment varieties always exceeds administrative opportunities of person making decision, and it is expected some events (any accident, for example) which not being taken into account in the project and would break investment process. At the same time the investor is obliged to make efforts on increase of awareness level and to try to measure riskiness of the investment decisions both at a stage of development of the project and during investment process. If degree of risk will grow up to inadmissible values, and the investor will not know about it, it is doomed to operate blindly.

The way of investment risk estimation is directly connected with way of information description of uncertainty regarding initial data of the project. When initial parameters have probabilistic description the parameters of investment efficiency also look like random variables with the implicative probabilistic distribution. Understanding investment as a version of business game, it is possible to say that investor should risk but to risk rationally appropriating the certain degree of expectancy to each potential scripts of investment process. Otherwise investor risks to suffer from non-acceptance of the decision - the loss of excessive reinsurance.

The economic risk in project documents is often estimated by sensitivity analysis of the basic efficiency parameters to change of various factors (price of oil, tax rates, price of the equipment, materials, raw material, the electric power and other elements of expenses). It is supposed, that there is a model describing dependence of target parameters of the project from entrance parameters. Hence, the problem of value estimation and of degree of project target parameters uncertainty is defined by estimation of corresponding parameters for external parameters of the project. These parameters can be estimated by following methods:

1) statistical;

2) constructions of mathematical economic models;

3) expert;

4) creations of scripts.

Use of statistical methods is at a loss by absence of statistical data or by small size of sample on some of parameters that is caused by uniqueness of each investment project. Besides by means of these methods it is impossible to predict the change of parameters caused by change of external conditions as the precondition of statistical methods use is the invariance of external conditions. Now mathematical economic models cannot provide accuracy essentially exceeding accuracy of a method of expert estimations but their using essentially is more expensive than the last. The aforesaid explains popularity of expert estimations methods and analysis of scripts in investment designing. Traditional methods of risks estimation of the investment projects based on the theory of probability and scripts analysis, from the methodological point of view, are not absolutely adequate and with practical - demand considerable volume of computer calculations. Therefore use of indistinct mathematics is represented more adequate and convenient from the computing point of view.

Distribution of investment can be considered in separate directions, such as projects of development of new oil reserves, projects further development of maintained oil reserves, project of various geological-technical actions. Each of these directions needs to be considered at a level of oil development and whole oil company. Thus there are following problems:

• The investor cannot precisely estimate volume of investment resources at the moment for decision-making;

• the investor cannot precisely estimate cost of the capital used in the project (for example, a parity of own and extra means, and also interest under long-term loans);

• the investor predicts a range of monetary results change of project realization in view of possible fluctuations of the prices for sold production, costs of consumed resources, conditions of the taxation, influence of other factors;

• the investor indistinctly imagines criterion on which the project can be recognized effective or doesn`t understand "efficiency" of project at the moment of end of investment process.

But in any case investor operates the investment following the certain reasons. On the one hand, the investor tries to maximize the profitableness. On the other hand, investor fixes maximum permissible risk of investment inefficiency (risk of losses).