2019 AAPG Annual Convention and Exhibition:

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Opportunity Valuation and Investement Decisions - A Tale of Narratives and Numbers

Abstract

How often have we heard the phrases “he is a number cruncher”, “there is nothing he could not sell”, conceded these stereotypes sound like profiling, but they are also rooted in two fundamentally different ways people are educated, often starting as early as grade school and leading to the STEM vs Liberal Arts higher education system. The fact is that we all have a preference when analyzing, presenting or making decisions based on data and information, investors and executives are no exception. The oil and gas upstream business is characterized by large uncertainties both in terms of variety and magnitude, leading to high investments risks and often elusive upsides, making sound investment decisions is a balancing act between narratives, a good storyline, and numbers, a sound valuation and pricing. Obviously complicating matters are biases both from individuals providing narrative, who does not want an optimistic and slightly biased explorer, as well as data where sampling biases are often a matter of facts. This paper will explore these issues with recent real-world examples, as well as suggest solutions on how to best integrate narratives and numbers, enabling executives and investors to beat the odds through better investment decisions.