A Probabilistic Model for Evaluating Capital Investment Proposals for Petroleum Refineries

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The purpose of this study was to develop a probabilistic model that could be used by petroleum refiners to evaluate the economic potential of refinery capital investment proposals. The following two requirements were placed on the development at the outset: (1) that the model use linear programming to simulate refinery operations; and (2) that the model keep computer time within reasonable bounds. A probabilistic model was developed that requires the following steps for its application: (1) use linear programming to simulate both the operations of the existing refinery and the operations assuming that the investment is made; (2) select two ... continued below

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3, viii, 152 leaves: ill.

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Martin, William Basil, Jr. December 1972.

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  • Martin, William Basil, Jr.

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The purpose of this study was to develop a probabilistic model that could be used by petroleum refiners to evaluate the economic potential of refinery capital investment proposals. The following two requirements were placed on the development at the outset: (1) that the model use linear programming to simulate refinery operations; and (2) that the model keep computer time within reasonable bounds. A probabilistic model was developed that requires the following steps for its application: (1) use linear programming to simulate both the operations of the existing refinery and the operations assuming that the investment is made; (2) select two variables that can be treated as probabilistic variables and assign either a theoretical or a subjective probability distribution to represent future values for the two variables; (3) develop return on investment interpolation data by computing a return on investment for all pair combinations of three tenth year values for each of the two probabilistic variables; (4) develop a return on investment distribution by selecting values at random from the two probability distributions and interpolating among the interpolation data to obtain return on investment data; (5) interpret the return on investment distribution. The model was applied to an actual refining situation that involved determining the expected internal rate of return of a proposed hydrocracker addition to a United States refinery. Total computer time required to evaluate the hydrocracker proposal was about 159 minutes. Accuracy of the interpolation feature of the model was also determined during the application. The average error of ten interpolated return figures that were selected at random for the accuracy check was 1.89 per cent.

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3, viii, 152 leaves: ill.

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  • December 1972

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  • May 10, 2015, 6:16 a.m.

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  • March 22, 2017, 10:55 a.m.

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Martin, William Basil, Jr. A Probabilistic Model for Evaluating Capital Investment Proposals for Petroleum Refineries, dissertation, December 1972; Denton, Texas. (digital.library.unt.edu/ark:/67531/metadc504025/: accessed October 24, 2018), University of North Texas Libraries, Digital Library, digital.library.unt.edu; .