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please help me with this question Petroleum Economics 1) An oil company exploring offshore has identied a prospect that it believes has great potential. However,

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Petroleum Economics 1) An oil company exploring offshore has identied a prospect that it believes has great potential. However, the company budget is limited, and management is concerned about solvency if they take on too much risk by themselves. Below is the company' s best estimate for the project and the various options available: Reserves Outcome Probabllty NW NW Dry Hole 0.20 -100 I Producer 0.80 400 The oil company has hired a consultant that has helped them identify their Risk Tolerance of $219.35M and two points on their utility scale: U(-$100M) = 0 and UISSOOM) = 1. The consultant also suggested the best utility formula for their company size would be: If the oil company was risk~neutral in its decisionmaking, which option be the clear choice and why? Complete the non-linear utility formula recommended for the oil company and create a plot of the utility function over the range of monetary values. Include the risk-neutral (MV line} in the plot. Is the oil company risk-averse, risk-neutral, or risk-seeking? Why? Given the investment options provided for the prospect, compute the Expected Utility (EU), Certainty Equivalent (CE), and Risk Premium (RP) for each option. Based on these values, which option is preferable? Why? At what 'dry hole' probability would the Farmout option be chosen based on CE? At what 'dry hole' probability would the Back-in option be chosen based on CE

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