Application of Exploration Statistics to Venture Assessment: Potential Merits and Problem Issues

Abstract

ABSTRACT Appropriate historical data on exploratory drilling and discoveries can provide valuable background information to assist in the projection of the economic outcomes of exploration ventures. This can be accomplished by using discovery statistics derived from historical data as a reference for, or supplement to, the specific assumptions made about the likelihood and size of potential discoveries in the venture under consideration. This paper, based on an extensive body of data developed for each of the U.S. petroleum provinces, discusses the utilization of exploration statistics in the form of "discovery functions" (relations between cumulative discoveries and cumulative exploratory drilling) for the purpose of prospect or venture assessment. In particular, we illustrate the validity of these functions, and demonstrate their application to the estimation of the discovery probabilities for fields of different sizes. However, we show that meaningful analysis requires that these probabilities be estimated separately for (suitably defined) individual depth zones. Another problem issue is that the measurement of exploratory drilling is not unequivocal: it may be defined in terms of the number of wells that are specifically targeted to, or terminating in, the zone under consideration, or in terms of both the terminating wells and those transversing the depth zone and going to deeper horizons. The effects of using these different measures of exploratory drilling in the derivation of discovery probabilities and subsequent venture assessment are outined.