Abstract: Deepwater oil and gas projects embody high risks from geology and engineering aspects, which exert substantial influence on project valuation. But the uncertainties may be converted to additional value to the projects in the case of flexible management. Given the flexibility of project management, this paper extends the classical real options model to a multi-factor model which contains oil price, geology, and engineering uncertainties. It then gives an application example of the new model to evaluate deepwater oil and gas projects with a numerical analytical method. Compared with other methods and models, this multi-factor real options model contains more project information. It reflects the potential value deriving not only from oil price variation but also from geology and engineering uncertainties, which provides more accurate and reliable valuation information for decision makers.