3 - Uncertainty and Probability Estimates for Risk-Adjusted Values and Working Interest

Abstract

This chapter highlights the importance of providing quantitative measures of risk aversion in relation to value, cost, success probability, and corporate risk tolerance, and of estimating working interest fractions for hydrocarbon-exploration projects. The dominant factors controlling cost estimates and their uncertainties are usually bid prices, seismic survey costs, rig costs, and subsurface drilling conditions, as well as factors having to do with future inflation estimates, taxes, and royalties. The variation in risk tolerance that a corporation is prepared to accept is itself a matter. The integrated use of modeling methods, geochemistry, geology, seismic processing, economic costs, future selling price, and fiscal risk can all impact the determination of economic reserves and so of risk-adjusted value. Various methods show how and when the individual subdisciplines have to be addressed to improve matters. One of the more interesting facets of such assessments is to have objective, reproducible methods expressed in simple form to demonstrate why the improvements are needed as well as the level of increased resolution that needs to be obtained.