Trend Analysis

SMITH, MICHAEL, Michael Smith & Associates, Inc., Houston, TX, and DONALD R. JONES,* Consultant, Houston, TX

The goal of exploration is to find reserves that will earn an adequate rate of return on the capital invested. Neither exploration nor economics is an exact science. We must therefore explore in those trends (plays) that have the highest probability of achieving this goal. Trend analysis is a technique for organizing the available data to make these strategic exploration decisions objectively and is in conformance with our goals and risk attitudes.

Trend analysis differs from resource estimation in its purpose. It seeks to determine the probability of economic success for an exploration program, not the ultimate results of the total industry effort. Thus the recent past is assumed to be the best estimate of the exploration probabilities for the near future. This information is combined with economic forecasts.

The computer software tools necessary for trend analysis are (1) Information data base--requirements and sources. (2) Data conditioning program--assignment to trends, correction of errors, and conversion into usable form. (3) Statistical processing programs--calculation of probability of success and discovery size probability distribution. (4) Analytical processing--Monte Carlo simulation to develop the probability distribution of the economic return/investment ratio for a trend.

Limited capital (short-run) effects are analyzed using the Gambler's Ruin concept in the Monte Carlo simulation and by a short-cut method. Multiple trend analysis is concerned with comparing and ranking trends, allocating funds among acceptable trends, and characterizing program risk by using risk profiles. In summary, trend analysis is a reality check for long-range exploration planning.

AAPG Search and Discovery Article #91004 © 1991 AAPG Annual Convention Dallas, Texas, April 7-10, 1991 (2009)