Uncertainties on Hydrocarbon Exploration Assessments in both the Absence and Presence of Optioning

Abstract

For hydrocarbon exploration opportunities a decision tree evaluation including variance in expected value leads to an extra uncertainty on the quality and worth of expected value as a decision device, due to both intrinsic uncertainties in success probability, assessed gains and assessed costs, and to the fact that the expected value is not one of the realizable outcomes. This paper shows how these uncertainty factors can be properly taken into account to provide a revised assessment of worth. In addition, a similar sense of logic prevails when options are considered for an opportunity. The uncertainty and success probability for an optioned opportunity are also assessed in terms of the volatility of the maximum option worth.