Responding Dr. Paul comment on my W9 blog about using gold equivalences as the basis for projecting the costs into the future applied to real oil and gas project, I would like to pick a 6 years data of yearly average unit cost of offshore drilling for analysis.
Development of alternatives
The unit cost of drilling is every dollar spent for every feet depth that drilled. Using gold equivalences for the drilling cost unit is every troy-ounce (oz) spent for every feet drilled.
Development of prospective outcomes
The 2007-2013 unit price data price of offshore drilling in USD and in oz are plotted and shown in Picture 1 as below.
Develop three projection curves for each correlation assumed as best case, worst case and most likely using Delphi Technique and the plot shown in the following picture:
Selection of the acceptable criteria.
Either budgeting well drilling in US Dollar or gold oz which is gives the most purchasing power and reliable .
Analysis and comparison of alternatives.
Since the variance is narrower and the R-squareds are above 0.90, we can use P90 level for analysis. The P95 level and 3-sigma are also calculated for comparison. The 2013 value is calculated using the trendlines equations.
Selection of the preferred alternative
Performance monitoring and postevaluation of results