A decision-making approach considering technology progress for investment in oil sands projects: An empirical analysis in Canada

Abstract This study presents a new decision-making approach for international oil firms to evaluate oil sands projects in Canada and examine the effects of technical progress on investment valuations. The results reveal that the linear net present value model in previous studies dramatically underestimates economic profits and the breakeven price estimated by the proposed approach (L-shaped NPV model) will be lower than US$50 per barrel for oil sands projects. This work also finds that some oil enterprises with advanced technology could reduce their oil sands exploration costs to approximately $32.73 per barrel. Furthermore, this study indicates that the profits from extraction cost reduction can cover the losses caused by some risk factors, such as exchange rates, inflation, and natural gas prices. The main contribution of this paper is to offer a flexible investment evaluation model that can assist oil companies in evaluating their own oil sands projects with different firm-specific technical progress characteristics.