Measuring the asset value of petroleum resources in Norway
Working paper

View/ Open
Date
2025-01Metadata
Show full item recordCollections
- Notater / Documents [873]
Abstract
From an accounting perspective, this paper presents formally the detailed implementation
procedure by applying the net present value (NPV) method to measuring the asset value of
Norwegian petroleum resources for the period 1970-2021. A variety of concrete implementation
issues are addressed, and alternative solutions are suggested accordingly.
By means of the residual value method, ex-post, or historically realized, resource rents are estimated
for the period 1970-2020, from which a long-term average real unit resource rent is derived and
then used as a predicted future real unit resource rent. Together with a predicted future production
profile, at the beginning of 2021, the asset value of Norwegian petroleum resources is estimated in
both current and constant prices for 2021. Using the calculated 2021 asset value and based on ex post annual resource rent for the period 1970-2020, the asset value at the beginning of each year
during the period 1970-2020 is also estimated.
Sensitivity analysis is conducted with respect to the choice of rate of return to produced capital and
discount rate, indicating that the estimated asset value is more sensitive to the choice of discount
rate than to that of rate of return. For each chosen rate of return, when the discount rate increases
by a constant margin, the estimated asset value decreases, but the marginal effect is decreasing. In
addition, the differences by using the different rate of return are also decreasing.
The estimation of petroleum asset value by applying the NPV method is based on a number of
assumptions, leading to uncertainties to the final estimates. This observation justifies the need for
further international corporation in harmonizing the way the key assumptions are made for such
compilations.
Although the final decision about the compilation of petroleum asset value as official statistics is still
pending in Norway, for example, as regards the choice of specific and detailed implementation
procedure, including the choice of rate of return and discount rate, a number of preferences and
recommendations drawn from this paper are tentatively given in the end.