On the Subject of Exploration Economic Analyses and Risk Assessments

Robert G. Font

Economic analyses are as crucial to the evaluation of exploratory ventures as good science. As explorationists we must understand the economic impact of our plays and prospects, since it is futile to be scientifically successful and economically bankrupt. Although collectively, as geoscientists, we recognize the importance of the economic assessments, we may vary drastically in our methodologies and in agreeing on which economic indicators to rely upon. Undiscounted vs. discounted factors, profit-to-investment ratios vs. rates of return, before vs. after tax calculations, risked vs. unrisked estimates, the "subjective nature" of risk assessments, and our "choice" of economic yardsticks illustrate examples of the dilemma. In summary, there are no accepted industry-wide standards involving risk analysis and economic appraisals.

This paper presents a suggested approach for eliminating "subjectivity" from risk analysis by establishing internal standards to be agreed upon by all members of any given exploration team. The "probability of success" is defined as the product of specific parameters which may directly affect the success or failure of the exploratory venture utilizing a numerical scale and a classification system derived for this purpose. In addition, a quantitative definition of exploratory "leads" versus "prospects" is developed.

AAPG Search and Discover Article #91019©1996 AAPG Convention and Exhibition 19-22 May 1996, San Diego, California