Oil and gas companies need to allocate resources in order to maximize their shareholder value. After analyzing the technical feasibility and determining the economic value, projects are ranked and only the most promising ones get funded. Hence, the process of evaluation is crucial and has to be representative. Even if companies are aware of the dynamic and risky environment the discounted cash flow analysis is the most commonly used tool to evaluate the economics of projects in the industry. But in today’s world these methods typically fail to represent the real economic value. As a consequence the real options approach was introduced by Stewart Myer in 1977. Real options use the mathematical principles of financial options to evaluate the value of flexibility. This new approach is not a replacement of traditional methods, it is rather a logical advancement and can be thought as an “addon” to the net present value method. Over the last decades numerous real option models are developed. The objective of the master thesis was to define the input parameters, the models and types used in the real options approach to evaluate E&P related projects and compare the results with the traditional discounted cash flow analysis. This new technique is intended to incorporate not only the value of information but also the value of flexibility and should therefore be able to enhance the valuation process and improve the strategic decision making. At first the thesis discusses some important real option input parameters and valuation techniques including the classical and recent sophisticated approaches and compares them to create a clear insight. Whereas the classical methods solely rely on market information, recent developments not only focus on market uncertainties but also on private uncertainties. After selecting a model the projects inherent flexibility is then estimated and the types of options are selected. The most common types in the E&P industry are the wait-to-invest, the termination, the temporarily shut in and the operational options. The final chapter includes numerical examples from the petroleum industry and analyses the advantages and disadvantages of real options. Understanding the different methods and applying the appropriate approach can effectively improve the valuation.