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The Role of Serendipity, Randomness and Luck in Petroleum Exploration


Petroleum explorers often acknowledge the contribution of luck in exploration outcomes. Our survey of 237 industry practitioners revealed that 90% of them believe that luck plays some role in the outcomes of exploration projects. However, the luck factor has never been quantified before, and therefore it remains an esoteric concept of little use to geoscientist and exploration managers. Luck clearly exists in petroleum exploration, as it contributed to many serendipitously discovered plays and pools. We studied luck as a factor in the variation of exploration success of different companies. Looking at the performance of companies exploring on the Norwegian Continental Shelf in 1966-2005, we concluded that the difference in success rate of a particular company from the overall industry success rate over time is consistent with what would be expected from luck alone. The variation in success rates for all companies within a given 5-year period is also not distinguishable from randomness. Using a global dataset of 8,906 conventional exploration wells in which 733 companies participated (had equity position) from 2008-2017, we calculated that the proportion of variance in geological success among the companies is 39% due to luck (25% for commercial success), the rest being related to skill. In frontier plays, luck contribution to the variation in geological and commercial success rates between different companies is 100%. However, the role of luck is relatively less in emerging plays (67% for geological success, 49% for commercial success), maturing plays (38% and 28%), and mature plays (29% and 28%, respectively). The role of explorers is to reduce the dependence of exploration results on luck by improving exploration processes. Managers should increase the exposure of their companies to opportunities, enable geoscientists with data, technology and knowledge, champion a consistent and unbiased process of opportunity evaluation, have (and communicate to investors) realistic (probabilistic) expectations of outcomes, keep track of forecasts versus results, and incorporate learnings into new evaluations. Individual explorers should focus on honing and demonstrating their prediction skills. Companies should recognize and reward those who correctly and consistently predict various outcomes of exploration wells rather than those who associate themselves with discoveries.