# Optimal Investment Timing and Scale Choice of Overseas Oil Projects: A Real Option Approach
## 2 Literature Review  
In this article, the main objectives are to reasonably choose the optimal investment timing and scale of overseas oil projects. It is clear that overseas oil projects involve large-scale irreversible investments and are in complex economic environments that cause large fluctuations in oil prices. Although the traditional net present value method (NPV) is simple and easy to implement, it cannot reasonably handle uncertainties because of its irrational assumptions, which make it impossible to accurately evaluate oil projects [7]. In the past decades, real option approach developed by [PERSON] [8], [PERSON] [9], and [PERSON] [10], which takes into account uncertainties and management flexibility, have been widely used in investment evaluation of oil projects [11; 12; 13]. In order to choose the optimal investment timing of energy projects, many scholars have adopted the real option approach, taking into account the management flexibility and various uncertainties [14; 15; 16; 17]. Based on this approach, [PERSON] [18] and [PERSON] [19] studied the effect of taxation on the choice of investment timing with the fixed oilfield investment scale. In an African oilfield project, [PERSON] et al. [20] analyzed the impact of oil price uncertainties on investment timing of decision-making through the application of real option approach. Considering uncertainty, irreversibility, and management flexibility, [PERSON] et al. [21] used trinomial tree model to analyze the investment opportunity in oilfield development and production phases. Moreover, the tree model of real option approach was used to evaluate the optimal retrofit timing of CCS investment by [PERSON] et al. [22]. Using the real option approach, [PERSON] et al. [23] analyzed the exercising price threshold for a gold mine and estimated the probabilities of exercising the option. The potential value for waiting is taken into account in the model, which is helpful in choosing optimal timing. In addition, the effect of postponing delivery commodity, which reflects the time of production, has also been discussed in mining investment [24]. Considering technology innovation in the long term, [PERSON] et al. [25] analyzed the correlation between investment timing adjustment and declining production cost. Although the aforementioned literatures considered decision-making flexibility and various uncertainties, these scholars viewed the projects' scale as fixed, which set the output and investment cost as constants. It is significant to consider the impact of investment scale in the choice of optimal investment timing. For international oil companies, the optimal investment timing needs to be revised if the sunk cost and output changes. In the study of investment scale selection, many scholars have used the method of integrated modeling, which aims to coordinate oilfield and maximize the net present value of oil projects. Due to its ability to reasonably describe all aspects of an oil project, it can help to choose the actual and optimal investment scale. The model, which aims to minimize overall cost for offshore oilfields, was initially created by [PERSON] and [PERSON] [26], and this article discussed the basic limitations and possible utility of the model. [PERSON] et al. [27] presented a multiperiod mixed-integer linear programming (MILP) model in order to plan and schedule offshore oilfield facilities. The model could optimize the selected economic indicator (for example, NPV) by a general objective function. In addition, [PERSON] and [PERSON] [28] and [PERSON] [29] used this method to choose oilfield optimal investment planning. However, the nonlinear planning models do not fully consider uncertainties such as oil prices and exchange rates. Therefore, the lack of consideration of risks, as well as the neglect of the value of management flexibility to the uncertainties, leads to bias in calculation of the value of oil projects.