LEVEILLE, GREGORY P., Conoco Inc., Houston,Texas

Abstract: Managing Risk and Uncertainty in Frontier Deep-Water Exploration Ventures

Prospect-focused quantitative risk analysis methods generally do a poor job of assessing the value of frontier exploration plays because they do not handle shared risks and uncertainties in a rigorous manner. Given that most of the deep-water basins of the world are currently either unexplored or are relatively under-explored, this is a significant problem - a problem which if not recognized and corrected may lead to sub-optimal investment decisions for individual exploration companies and the upstream industry as a whole. Play-scale risk analysis methods that correctly deal with shared risks and uncertainties are therefore required for assessing the potential of frontier deep-water exploration ventures.

Play-scale risk analysis methods provide better value assessments than prospect-focused techniques in frontier plays because the value of a frontier play is generally greater than the sum of the values of the individual prospects in the play. This is true as long as 1) the play consists of multiple prospects, 2) some risks and/or uncertainties are shared amongst the prospects, and 3) one has the option to stop exploring if condemning or strongly negative information is acquired during the exploration program. While every play will be different, in general, plays with a high proportion of shared risks and uncertainties and a large numbers of prospects will have the greatest variance between play based and prospect based value assessments. Because frontier plays generally have these attributes, prospect-focused risk analysis methods often undervalue these plays enough to impact resource allocation decisions and exploration strategies.

AAPG Search and Discovery Article #90923@1999 International Conference and Exhibition, Birmingham, England