Holistic vs. Hole-Istic E&P Strategies

Abstract

E&P is a risky business because, while a few exploration projectsare tremendously successful, most are total failures. This makesmanagement of uncertainty crucial. Development of seismic tech-nology in the 1930’s and 1940’s substantially reduced the risk infinding petroleum. The resulting geology and geophysics (G&G)revolutionized petroleum exploration.Decision analysis traditionally has been applied to rank projectshole by hole, determining (on an individual basis) whether theyshould be explored and developed. Today this “hole-istic” approachis being challenged by a holistic one that takes into account theentire portfolio of potential projects as well as current holdings.This portfolio analysis starts with representations of the local uncer-tainties of the individual projects provided by geology and geo-physics. It then takes into account global uncertainties by addingtwo additional G’s: geoeconomics and geopolitics, thereby reducingrisks associated with price fluctuations and political events in addi-tion to those addressed by traditional G&G analysis. The holisticapproach is based on, but not identical to, the Nobel-prize winningportfolio theory