Data Analysis Techniques:

From amongst widely applicable project profitability assessment technique, we heavily depend up on the extensive application of NPV method. In principle, projects are considered to be worthy as long as their NPV turns out to be positive. Here is how the model works. Being a project with a long span of life it is characterized by subsequent cash outflows and cash inflows. cash outflows every year are then deducted from corresponding cash inflows in the same year to come up with the profit margin of that year. These net cash flows for subsequent years over the life of a project are each discounted to 2020 at which year a decision to open lofoten for oil and gas industries is expected to be made. The whole process involves NPV calculation by taking into account direct cost and benefit, indirect cost and benefit as well as external costs and benefits if there are any.

5.2.1 Direct Cost-Benefit Analysis:

A point of departure for our cost-benefit analysis is the valuation of direct costs and corresponding revenues. Following the model applied by mohn in his (2019) article estimated

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total costs and corresponding production levels have been taken into account. Accordingly cost element is the summation of exploration, development, and operation costs, represented by subsequent annual expenditures that extends to 2070. By taking projected production level into account, we have calculated corresponding resulting projected revenue and consideration to oil and gas price changes have been taken into account. More precisely the model includes the possible cost of exploration, development and extraction costs of oil and gas for the time period of 50 years, from 2021 to 2070. The adjustment in the price of both oil and gas have been made in order to reflect the most recent market values and an exchange rate of NOK to USD has been updated. So, the price of oil is set USD 65 (NOK 585 bbl.), and the price for gas has been set USD 2/boe, and the adjusted exchange rate USD/NOK has been 9. Subsequently, the projected net cash flows are identified by deducting the cost from the revenue for each year up to 2070 and then the projected net cash flows (CF) are discounted with 3% discount rate, which is also the Global Pension Fund rate of return. When discounted cash flows (DCF) are added, the net present value (NPV) was found which is considered as a net direct effect.

Dynamism to one or more of the variables used in the calculation to come up with this NPV has been taken into account as a result of which the model was made a little bit more relaxed and represent real life situation. sensitivity analysis has been done by introducing changes to price, reserve estimates, and costs of the project with an intention to reflect uncertainties. This enabled us to analyze at least four scenarios. A clearing ground for sensitivity analysis was made when we developed our reference scenario with a basic assumption of the major variables .then after by introducing assumed percentage changes in the price, we have analyzed how sensitive NPV is in what we called scenario I. keeping cost element constant we made resource estimate to react to changes in price and analyzed how sensitive NPV is to such considerations in scenario II. Following the same procedure further, in our scenario III, we let the cost variable to react to price changes and have determined how much sensitive NPV is when our consideration disregards any change in the resource volume. A more comprehensive scenario is scenario IV where both cost and reserve estimates are made to respond to price changes and represent more logical assumption to which again we have obtained different sensitivity of NPV under such consideration.

5.2.2 Indirect Cost- Benefit Analysis:

In addition to direct benefits and costs associated with this sort of projects, there are tremendous ripple effects, which can better be considered as Indirect benefit or cost. Our main analysis

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tried to take into account these ripple effects as much as possible where the positive indirect contribution of the project must have been offset by the negative indirect consequences. For this reason, the positive indirect contribution has been represented by the amount of indirect employment the projects are expected to create, and by the revenues generated from the expected supply sectors. this is to say that possible indirect benefit is the benefit that the Norwegian economy will enjoy from flourishment of the petroleum supply sector industry.

Due to new additional oil and gas production, exploration and extraction a handful of petroleum related supply industry will be established and the benefit from this sector will add into the Norwegian economy by generating new revenue and opening new employment. on the other hand, an offsetting indirect move is apparent when existing companies lose their competitiveness due to increased wage, and traditional industries like fishing and tourism are at risk of losing their income due to the possible danger of oil spill. The level of damage when happens is so intense that may go to the extent of inflicting damage to the national level for the Barents Sea is the major source for Norwegian fishing industry which will become vulnerable to oil spill accidents. Actually, Major oil spill could lead to irreversible damage to the fish stock and thus to the fishing industry. Moreover, this artificial industrial settlement will demotivate the tourists.

The technique we followed here was the one that was implemented by Loureiro, Ribas, Lopez,

& Ojea (2006) for estimating the admissible cost of Prestige oil spill. We found this technique is the closest to the realistic valuation of losses from any oil spill. We have also taken the last 10 years fishing revenue was used to identify the growth rate. Sum up the average and divided by a number of years.

𝑓𝑖𝑠ℎ𝑖𝑛𝑔 𝑆𝑒𝑐𝑡𝑜𝑟 𝐺𝑟𝑜𝑤𝑡ℎ 𝑅𝑎𝑡𝑒 (𝐺𝑅) =∑𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑓𝑖𝑠ℎ 𝑐𝑎𝑡𝑐ℎ 𝑜𝑓 𝑒𝑎𝑐ℎ 𝑦𝑒𝑎𝑟 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑦𝑒𝑎𝑟𝑠

As we know that Lofoten is the number one tourist attraction of Norway. Simultaneously, the reduction of fishing and tourism will also hamper the fishing and tourism supply sector industries. For example, cold storage, transportation, fish processing factories, etc. (Loureiro, Ribas, Lopez, & Ojea, 2006). Even though the fishing ban depends upon the quality and quantity of oil spills, weather and geographical location, but we are considering a hypothetical oil spill situation where the possibility of the oil spill is 100 percent (Mohn, 2018). In this regard, we are also considering a 100 percent ban on fishing and 100 percent tourism reduction up to 2070. This is the maximum loss that can be incurred in case of a worst-case scenario.

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There after we added the cleanup costs. In the second part of this calculation, the indirect costs are deducted from the indirect benefits and the net indirect benefits are discounted with 3 percent discount rate for the 50 years span and added to get the net indirect effect. Present value (PV) formula for 50 years is shown in equation 5.3.

𝑃𝑉 =𝐹𝑉_{𝐶𝑓 2020}

(1 + 𝑟)^𝑡0 +𝐹𝑉_{𝐶𝑓 2021}

(1 + 𝑟)^𝑡1+ ⋯ 𝐹𝑉_{𝐶𝑓 2070} (1 + 𝑟)^𝑡50

5.2.3 External Benefit-Cost Valuation:

The third part of the total economic assessment approach we followed involves the analysis of external costs and benefits in relation to this project. as far as this project is concerned these external effects tend to be generally negative for potential risks of operation have the tendency of damaging bird life, fish stock, and dampening recreational qualities of the region. It is then really apparent that valuation of external costs is more complex than the two previous valuation we have discussed due to lack of market value for some of the subject of valuation. Hence following previous research approaches, we used survey-based methods to reveal the willingness to pay for the quality of nature, environmental goods, and recreational values.