Estimating the expected value of multiple prospects in bidding blocks

Abstract

In recent years, China has accelerated the reform of its oil and gas management system, especially in competitive transfer of mining rights. Evaluating the expected value (EV) of lease blocks is crucial for the bidding decision of oil companies. When bidding for a block with several individual prospects, the simple addition of each prospect EV usually leads to overly high and optimistic resource volume and value estimates. For the assessment of the EV of a multi-prospect block, two factors should be considered. Firstly, the geological setting of the prospects, including their relative spatial relationship, their chance of geological success, their resources and their geological dependency, etc. The second factor is the exploration strategy of oil companies, concerned with the dry hole tolerance, the committed wells and the drilling priorities for the prospects, etc. A probabilistic method to assess the EV of a multi-prospect block is proposed, which proves to be favorable for formulating a bidding strategy for oil companies. In addition, a case study on two specific blocks with several prospects is presented to illustrate the effect of the above mentioned factors on the EV.