On Economic Resolution and Uncertainty in Hydrocarbon Exploration Assessment

Abstract

When assessments of parameters of a decision tree for a hydrocarbon exploration project can lie within estimated ranges, it is shown that the ensemble average expected value has two sorts of uncertainties: one sort due to the expected value of each realization of the decision tree being different than the average; the second sort due to intrinsic variance of each decision tree. The total standard error of the average expected value combines both sorts. The use of additional statistical measures, such as standard error, volatility, and cumulative probability of making a profit, provide insight into the selection process leading to a more appropriate decision. In addition, the use of relative contributions and relative importance for the uncertainty measures guides one to a better determination of those parameters that dominantly influence the total ensemble uncertainty. In this way one can concentrate resources on efforts to minimize the uncertainty ranges of such dominant parameters. A numerical illustration is provided to indicate how such calculations can be performed simply with a hand calculator.