If you choose to valuate an oil and gas reserve, you should consider a minimum of 15 years for the project. The production rate from an oil and gas reserve typically declines after reaching the plateau at a rate of anywhere between 1% and 5% per annum. During the lifetime of the project, the crude oil price could have significant trend and cycles. The development and operating costs can also be influenced by the oil price. For a valuation project, generally you should perform

(1) an NPV analysis assuming the future is known for certain;

(2) a real option analysis using a model learned in this module;

(3) a Value-at-Risk analysis.