Abstract: On the Subject of Standardizing Risk Assessments and Quantitatively Defining "Prospects" vs. "Leads" in Exploration Economics

Robert G. Font, Wayne A. Mudd, Elaine M. Travers, D. F. Reck

Most petroleum prospects understand the importance of the "economics" of an exploratory venture. The real issue in "exploration economics" concerns whether or not we can make money for the endeavor. If the answer is positive, we must also determine how much and how quickly we will be rewarded. However geologically attractive a prospect may be, it is futile to be scientifically successful and economically bankrupt. although we recognize the necessity of the economic analysis, we do not always agree on what economic indicators to rely upon. Major companies generally have standard guidelines to assess the economic viability of exploratory ventures. In contrast, independents may vary greatly in defining what is "critical" in the economic appraisal. Whether to use "discounted" or "undiscounted" factors, "P/I" ratios or "rates of return," "risked" or "unrisked" estimates, constitute examples of the dilemma. Furthermore, we may find it difficult to standardize the definition of economic parameters, since any given term may mean something radically dissimilar to different individuals. Particularly problematic is the "subjectivity" of assigning "risk" to exploratory undertakings. What a prospect generator may consider "low risk" may qualify as "high risk" by another evaluator and be completely unacceptable by an investor. The "probability of success" must be ascertained, without favoritism and preconception. Here, we present a method designed to remove subjectivity from risk appraisals and for quantifying exploratory "leads" versus "prospects". Examples are discus ed.

AAPG Search and Discovery Article #90960©1995 AAPG Southwest Section Meeting, Dallas, Texas