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.